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Nomura | Global Economic Outlook Monthly

11 March 2013

Global Economic Outlook Monthly


Economics Research | Global

No pressure
Amid growing signs that the worlds major economies have hit a speed bump, the US is looking increasingly like a bright spot, but is not without risks of its own.

11 MARCH 2013

Global Economics
nomura-globalEconomics@nomura.com Contributor names can be found within the body of this report and on the back cover This report can be accessed electronically via: www.nomura.com/research or on Bloomberg (NOMR)

COUNTRY AND REGIONAL ECONOMIC OUTLOOKS


Australia | The rebalancing of the economy is likely coming Brazil | Accelerating inflation, delayed recovery Canada | Growth exhaustion China | Rising inflation and a weak recovery pose a policy dilemma Euro area | ECB's recovery scenario could be challenged by lack of pass-through Hong Kong | Hong Kong: Fiscal stimulus Hungary | Unorthodox policy focus shifts to non-independent central bank India | Politics trumps economics Indonesia | Still a case to tighten Japan | We forecast 0.9% y-o-y growth in 2013 Malaysia | All eyes on the elections Mexico | 2013: The year of reforms Philippines | In a virtuous cycle Poland | NBP's limited cutting cycle is over - growth still outperforming Singapore | A weak start to 2013 South Africa | Status quo means the brakes are still applied South Korea | Growth momentum set to carry into Q1 Taiwan | External demand is key Thailand | A positive start to 2013 Turkey | A healthy rebalancing United Kingdom | Stagnant United States | Lost in translation Rest of EEMEA Rest of Latin America 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Nomura Securities International Inc.

See Disclosure Appendix A-1 for the Analyst Certification and Other Important Disclosures

Nomura | Global Economic Outlook Monthly

11 March 2013

Forecast Summary

Real GDP (% y-o-y) Global Developed Emerging Markets Americas United States* Canada Latin America Argentina Brazil Chile Colombia Mexico Venezuela Asia/Pacific Japan Australia New Zealand Asia ex Japan, Aust, NZ China Hong Kong*** India** Indonesia Malaysia Philippines Singapore*** South Korea Taiw an Thailand Western Europe Euro area Austria France Germany Greece Ireland Italy Netherlands Portugal Spain United Kingdom EEMEA Czech Republic Hungary Israel Poland Romania South Africa Turkey 2012 3.0 1.2 5.2 2.3 2.2 1.8 2.6 1.9 0.9 5.4 3.8 3.9 5.5 5.4 2.0 3.6 2.4 6.2 7.8 1.4 5.1 6.2 5.6 6.6 1.3 2.0 1.3 6.4 -0.4 -0.5 0.6 0.0 0.9 -6.6 0.6 -2.2 -0.9 -3.2 -1.4 0.0 1.8 -1.7 -2.7 2.5 2.2 0.3 2.6 3.0 2013 3.0 0.9 5.4 2.3 1.9 1.3 3.4 4.0 3.5 5.5 4.2 3.5 -1.0 5.3 1.0 2.2 2.7 6.2 7.7 2.5 5.2 6.1 4.3 6.4 2.4 2.5 3.0 4.5 -0.6 -0.8 -0.1 -0.5 0.5 -5.5 0.8 -2.5 -1.2 -3.4 -2.5 0.2 2.5 0.0 -0.5 3.0 1.9 0.6 2.8 4.5 2014 3.8 1.8 5.8 3.2 3.1 2.0 3.8 3.5 3.2 5.0 4.5 4.5 3.0 5.8 1.9 2.6 2.8 6.6 7.5 3.5 6.6 6.2 4.6 5.8 4.2 3.5 3.5 5.0 0.1 0.0 0.8 0.5 0.7 -2.0 1.3 -1.3 0.1 -0.2 -1.5 0.7 3.5 1.4 0.9 3.5 3.0 1.5 3.2 5.5

Consum er Prices (% y-o-y) 2012 3.2 2.0 4.7 3.6 2.1 1.5 8.0 25.4 5.8 1.5 2.4 4.1 20.1 3.0 0.0 1.8 1.1 3.7 2.6 4.1 7.5 4.3 1.7 3.1 4.6 2.2 1.9 3.0 2.6 2.5 2.6 2.2 2.1 1.0 1.9 3.3 2.8 2.8 2.4 2.8 5.5 3.3 5.7 1.7 3.7 3.3 5.7 8.9 2013 3.3 1.6 5.2 3.7 1.7 1.3 9.6 32.3 5.9 3.3 2.7 3.4 35.5 3.6 0.1 2.6 1.8 4.2 3.5 4.3 7.1 5.2 2.4 4.6 3.9 2.7 2.3 3.2 1.8 1.6 2.3 1.4 1.6 -0.1 0.3 1.7 2.9 0.4 1.9 2.8 4.2 1.8 4.0 2.6 1.4 3.4 5.6 6.7 2014 3.5 1.8 5.3 3.6 1.6 2.0 9.1 29.7 5.5 3.0 3.5 3.5 27.6 4.1 2.3 2.5 2.8 4.5 4.0 4.3 6.8 5.1 2.5 4.5 3.6 3.0 2.3 3.1 1.6 1.4 1.9 1.6 1.4 -0.3 0.6 1.3 2.1 0.3 1.1 2.5 4.5 1.6 5.4 2.7 2.9 3.2 5.5 6.3

Policy Rate (% end of period) 2012 2.99 0.45 5.98 2.08 0.13 1.00 7.48 15.37 7.25 5.00 4.25 4.50 14.55 4.66 0.05 3.00 2.50 5.65 6.00 0.40 8.00 5.75 3.00 3.50 0.38 2.75 1.88 2.75 0.71 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.50 4.41 0.05 5.75 1.75 4.25 5.25 5.00 5.50 2013 2014 3.12 3.24 0.37 0.40 6.21 6.24 2.23 2.28 0.13 0.13 1.00 1.50 8.00 7.83 14.00 17.00 8.25 8.00 5.25 5.25 3.50 4.50 4.00 4.50 16.00 17.00 4.90 4.95 0.05 0.05 2.75 3.00 2.75 3.50 5.90 5.90 6.50 6.50 0.40 0.40 7.50 7.00 6.25 6.75 3.50 4.00 4.00 4.50 0.48 0.50 2.75 3.25 2.13 2.13 2.75 3.25 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 4.07 4.73 0.05 1.00 4.00 4.00 1.75 2.50 3.25 4.50 5.25 6.00 5.00 6.00 5.50 5.50

Note: AAggregates are calculated using purchasing power parity (PPP) adjusted shares of world GDP (table covers about 84% of world GDP on a PPP basis); our forecasts incorporate assumptions on the future path of oil prices based on oil price futures, consensus forecasts and Nomura in-house analysis. The Brent oil price for 2012 was $112; currently, assumed Brent oil prices for 2013 and 2014 are $110 and $102, respectively. *The 2012 policy rate was the midpoint of the 0-0.25% target federal funds rate range; 2013 and 2014 policy rate forecasts are midpoints of the 0-0.25% target federal funds rate range. **Inflation refers to wholesale prices. ***For Hong Kong and Singapore, the policy rate refers to 3M Hibor and 3M Sibor, respectively. The 2012 policy rate was the midpoint of the BOJs 0-0.10% target unsecured overnight call rate range; 2013 and 2014 policy rate forecasts are midpoints of BOJs 0 -0.10% target unsecured overnight call rate range. CPI forecasts for Latin America are year-on-year changes for Q4. The numbers in bold are actuals. The arrows signify changes from last month. Source: Nomura Global Economics.

Nomura | Global Economic Outlook Monthly

11 March 2013

Our View in a Nutshell (changes from last month highlighted)

United States
Fiscal policy remains a source of uncertainty for the outlook, but risks of a policy misstep have diminished. We expect capital expenditures to accelerate in the second half of the year in response to lower uncertainty around the outlook. Ample economic slack, apparent in the high rate of unemployment and unused capacity, should restrain inflation. We expect the FOMC to continue its long-term asset purchases through the third quarter of 2013, and taper purchases thereafter. A strengthening of the housing market should support investment, job creation, and aggregate demand. The slowing pace of global growth and contractionary US fiscal policy are the key risks to growth.

Europe
Fiscal tightening, financial deleveraging and sovereign debt market tensions should lead to a deeper-than-expected recession. OMT announcement reduced probability of Spain calling an ECCL imminently. Our baseline remains an ECCL will be called. After a phase of relative calm, markets will likely test the backstop and pressure should rebuild around weak sovereigns. GDP contraction, higher non-performing loans and rising debt trajectories remain the key euro area challenges. Because we forecast a weak economic backdrop, we retain our bias for lower ECB rates (in June). We expect inflation to be sticky in the UK, albeit back in the right ballpark, but to slip below target during 2013 in the euro area. The BoE aggressively announced QE, liquidity and funding support in 2012. We see a bias toward doing more in 2013.

Japan
We expect an export recovery, driven by China's economic recovery to deliver positive growth in Q1 2013. The export recovery should stimulate domestic demand and ensure the overall economy is in a stable growth phase in 2013. We expect the BOJ to extend duration of APP-eligible JGBs to 5yr and to raise purchases by ~JPY10trn at its April meeting. The main risks are yen appreciation, a worsening European debt problem and the US and China slowing.

Asia
Our focus is on overheating risks, but we are cognisant that a China slowdown could take the steam out of Asias economies. China: GDP growth should stay strong in H1, but the debt build-up and rising inflation should thwart the recovery in H2. Korea: We expect the BOK to stay on hold at 2.75% through 2013 as growth and inflation should rise modestly from a low base. India: With the structural fiscal deficit still high, we expect weak growth, a high current account deficit and little room for rate cuts. Australia: With the peak in resource investment approaching, we believe the RBA will cut rates by 25bp in 2013. Indonesia: An increasingly uncertain policy environment could lead to delays in reforms and sustained current account deficits.

EEMEA (Emerging Europe, Middle East and Africa) and Latin America
South Africa: A continuing political status quo should continue to hold the economy back. Hungary: We view the central bank as having lost its independence and that a devaluation and unorthodox policy are on the way. Poland: Should experience a strong recovery in H2. The rate-cutting cycle seems over, though the risk is skewed to one more. Turkey: Rebalancing continues and is likely to pave the way for further upgrades. Brazil: Supply-side constraints will cap growth at around trend, despite multiple rounds of stimulus measures. Mexico: We expect the new government to embark on a series of important reforms in 2013. Argentinas growth is set to recover modestly in 2013. Inflation and RER overvaluation to remain problematic.

Nomura | Global Economic Outlook Monthly

11 March 2013

Australia | Economic Outlook


The rebalancing of the economy is likely coming
Growth is likely to slow due to weaker business investment and the terms of trade. The RBA is expected to cut the official rate by 25bp to stimulate the economy. Activity: Growth slowed in H2 2012 as a result of the negative terms-of-trade shock from weaker commodity prices, which has reduced business investment and gross domestic income. We believe that with the peak in resource investment likely coming in the first half of 2013, business investment growth will slow in 2013. However, with the previous RBA rate cuts making their way through the economy, we believe that better household spending should spur dwelling investment and offset some of the weakness. Moreover, better growth in China and the rest of Asia in 2013 should provide some support to exports and commodity prices. With elections announced for later this year, fiscal policy could be slightly supportive of growth until then, but fiscal consolidation should return once the election has passed. Inflation: CPI inflation in Q4 was weaker than expected, signaling that the second-round impact of the carbon tax was not an issue. We expect inflation to remain close to the upper band of the inflation target in the first half of 2013 before moderating in the second half of the year. A similar profile is expected for the underlying measure. However, both measures should peak slightly below 3%. Policy: We expect a further 25bp reduction in the official rate in Q2, as the upside risk to inflation did not materialize, with the hope this will ease the economic rebalancing from the resource sector to the non-resource sector and to offset the headwind from the strong Australian dollar. However, the exact timing of the cuts will depend on incoming data, especially the release of Q1 CPI. If inflation moderates in Q1, the RBA could cut at the May meeting. Risks: A strong currency and a sharp slowdown in China remain the main downside risks to the outlook. On the flip side, improved risk sentiment, momentum in the housing sector, global trade and renewed increases in commodity prices represent upside risks to growth and inflation.
Fig. 1: Details of the forecast
% q-o-q ar. Real GDP (% y-o-y) Real GDP Personal consumption Private investment Business investment Dw elling investment Government expenditures Exports Imports Contributions to q-o-q GDP: Domestic final sales Inventories Net trade Unemployment rate Employment, 000 Consumer prices Trimmed mean Weighted median Fiscal balance (% GDP) Current account balance (% GDP) RBA cash rate target 3-month bank bill 2-year government bond 5-year government bond 10-year government bond AUD/USD 4.25 4.30 3.47 3.58 4.08 1.04 3.50 3.54 2.46 2.58 3.04 1.02 3.50 3.36 2.48 2.54 2.91 1.05 3.00 3.07 2.65 2.82 3.27 1.04 3.00 3.00 2.85 3.00 3.40 1.05 2.75 2.80 2.80 3.00 3.40 1.10 2.75 2.80 2.85 3.00 3.10 1.12 2.75 2.80 2.70 2.60 3.20 1.12 1Q12 4.4 5.0 6.3 21.5 30.3 -6.8 0.9 -2.6 6.8 7.6 -0.6 -2.0 5.2 47 1.6 2.3 2.3 2Q12 3.7 2.6 3.0 12.6 18.0 -7.1 -0.1 7.7 1.9 4.4 -3.0 1.2 5.2 49 1.2 2.0 2.1 3Q12 3.1 2.6 0.9 6.4 7.2 3.2 -8.5 6.4 1.4 0.0 1.8 0.8 5.3 6 2.0 2.4 2.3 4Q12 3.1 2.4 0.9 -14.0 -18.8 8.7 20.9 14.0 2.6 1.1 -0.6 1.8 5.4 22 2.2 2.3 2.3 1Q13 2.4 1.8 2.0 0.8 0.0 4.0 -0.2 7.0 2.0 1.0 0.0 0.9 5.4 12 2.7 2.5 2.5 2Q13 2.2 1.8 2.0 1.8 1.0 5.0 -0.2 7.0 3.3 1.2 0.0 0.7 5.5 23 2.9 2.6 2.6 3Q13 2.0 2.0 2.2 3.8 3.5 5.0 -0.2 7.0 4.6 1.6 -0.1 0.4 5.5 46 2.1 2.4 2.5 4Q13 2.0 2.4 2.6 5.0 5.0 5.0 -0.2 7.0 5.3 2.0 0.1 0.3 5.5 58 2.5 2.5 2.5 2012 3.6 3.6 3.2 10.5 15.0 -4.5 2.4 6.3 6.8 3.9 -0.2 -0.1 5.2 31 1.8 2.3 2.3 -2.0 -4.1 3.00 3.07 2.65 2.82 3.27 1.04 2013 2.1 2.1 1.8 0.0 -1.1 4.4 2.3 8.2 2.8 1.3 -0.1 1.0 5.5 35 2.6 2.5 2.5 -0.5 -5.2 2.75 2.80 2.70 2.60 3.20 1.12 2014 2.3 2.3 2.5 4.6 4.6 4.5 -0.2 7.0 5.1 2.0 -0.1 0.4 5.4 71 2.5 2.5 2.5 -0.2 -5.5 3.00 3.05 3.10 3.20 3.60 1.12

Charles St-Arnaud
+1 212 667 1986 charles.starnaud@nomura.com

Martin Whetton
+61 2 8062 8611 martin.whetton@nomura.com

Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. CPI inflation includes the impact from, the carbon tax, but not the underlying measures. Interest rate and exchange rate forecasts are end of period. Numbers in bold are actual values. Table reflects data available as of 8 March 2013. Source: Australian Bureau of Statistics, Reserve Bank of Australia, Nomura Global Economics

Nomura | Global Economic Outlook Monthly

11 March 2013

Brazil | Economic Outlook


Accelerating inflation, delayed recovery
Supply side constraints and a lack of business confidence are delaying a long-awaited recovery. Meanwhile, various forms of demand-side stimuli should keep inflation elevated. Activity: The economy grew merely 0.9% in 2012, the slowest pace over the past decade, barring the crisis year of 2009. Investment fell more than 4% y-o-y, despite 525bp of cuts to the Selic policy rate since Q3 2011 and various fiscal stimuli applied by the government. Looking forward, we believe growth will likely rebound to 3.5% in 2013, as the global scenario turns better and the lagged effects of monetary and fiscal stimuli gradually take effect. Inflation: Consumer prices have been rising fast recently and inflation pressures should remain high. This is on one hand due to very accommodative monetary policies, and on the other hand as a result of policymakers desire to reduce price levels through one-off tax and tariff cuts, which will only boost income and further stimulate demand down the road without addressing supply-side bottlenecks. Inflation hit at 6.3% in February, and we expect it to continue edging up, possibly breaching the 6.5% target upper bound. Inflation should slow down a little bit in H2, finishing the year at around 6%. Policy: The priority of policymakers shifted from boosting growth to fighting inflation over the past month or so. In January, the BCB expressed its desire to see a stronger currency in fending off inflation; as a result, USDBRL broke the key 2.00 support level in late January and has stayed below ever since. We expect the currency to gradually appreciate towards 1.90 by year-end. In its March monetary policy communiqu, the BCB removed its (rates) low for long language and stated explicitly that its next step will depend on macroeconomic scenarios. Before reading the March BCB minutes (released March 14), we still believe the BCB will start raising Selic in H2, delivering no more than 100bp of hikes. However, the higher than expected February inflation considerably raises the likelihood of an early hike, in either April or May. Risks: Labor markets remain very tight in Brazil, adding substantial pressure to service prices and keeping headline inflation elevated. Any further supply shocks will complicate an already tricky inflation outlook in a year when growth is expected to be only around potential. In the medium term, Brazil faces the challenge to reorient its growth model from a consumptiondriven one to a more investment-driven one. Without enough political will to tackle this challenge, especially when it comes to lowering labor costs and boosting private investment in infrastructure, we expect potential growth to further decelerate over the coming years.
Details of the forecast
% y-o-y change unless noted Real GDP Personal consumption Fixed investment Government expenditure Exports Imports 1Q12 0.8 2.5 -2.1 3.4 6.6 6.3 2Q12 0.5 2.4 -3.7 3.1 -2.5 1.6 3Q12 0.9 3.4 -5.6 3.2 -3.2 -6.4 4Q12 1.4 3.9 -4.5 3.1 2.1 0.4 1Q13 2.3 4.2 -0.2 2.3 3.0 2.9 2Q13 3.5 5.3 4.3 0.6 7.1 4.7 3Q13 4.0 5.3 7.0 3.2 8.0 9.0 4Q13 4.4 4.6 8.3 4.4 4.0 8.5 2012 0.9 3.1 -4.0 3.2 0.5 0.2 2013 3.5 4.7 4.8 2.7 3.6 8.1 2014 3.2 4.1 4.6 2.4 4.5 7.7

Tony Volpon
+1 212 667 2182 tony.volpon@nomura.com

Contributions to GDP growth (pp) Industry -0.4 Agriculture 0.0 Services 0.9 IPCA (consumer prices) IGPM (wholesale prices) Trade balance (US$ billion) Current account (% GDP) 5.2 3.2 29

0.1 0.0 0.3 4.9 5.1 24

0.2 0.0 0.5 5.3 8.1 22

0.3 0.1 0.8 5.8 7.8 19

0.6 0.1 1.3 6.5 7.3 18

0.8 0.2 2.0 6.2 7.0 17

1.0 0.2 2.3 6.0 6.8 16

1.1 0.2 2.5 5.9 6.5 15

0.2 0.0 0.5 5.8 7.8 19 -2.4 2.0 55.1

0.8 0.2 2.0 5.9 6.2 15 -2.7 2.0 54.0

0.8 0.2 1.8 5.5 5.5 15 -2.7 2.0 53.0

Primary fiscal balance (% GDP) 2.4 Gross government debt (% GDP) 55.2

2.0 55.0

1.7 59.3

2.0 55.1

Selic % 9.75 8.50 7.50 7.25 7.25 7.25 7.75 8.25 7.25 8.25 8.00 USDBRL 1.83 2.01 2.03 2.05 1.96 1.94 1.92 1.90 2.05 1.90 1.90 Notes: Annual forecasts for GDP and its components are year-over-year average growth rates. Annual CPI forecasts are year-on-year changes for Q4. Trade data are a 12-month sum. Interest rate and currency forecasts are end of period. Contributions to GDP growth do not include taxes. Numbers in bold are actual values, others forecast. Table reflects data available as of 8 March 2013. Source: Nomura Global Economics.

Nomura | Global Economic Outlook Monthly

11 March 2013

Canada | Economic Outlook


Growth exhaustion
Growth to remain below potential in 2013, as the expected rebound in investment and exports is likely to be weak and the oil differential cause a drag on growth Activity: After some weak growth in H2 of 2012 due to a large drag from net exports and inventories, we expect growth in Q1 showed a small improvement but should remain below potential. For 2013, we expect growth to be below 2% most of the year. We expect personal spending growth to moderate as households gradually reduce their debt burdens and as income growth remains slow; however, while business investment in machinery and equipment is expected to pick up, the improvement will likely be small. A rebound in global growth is expected, with stronger growth in China and the US supporting exports, but this will mainly affect growth in H2. Moreover, growth in the US could remain weak due to the impact of the sequester. The continued discount on Canadian oil prices should be negative on the terms of trade and act as a headwind on growth by reducing corporate profits, and investment tax revenues. Inflation: With an increasing amount of spare capacity, inflation remains weak and we think inflationary pressures are likely to remain contained. We expect headline inflation to increase gradually, but should end 2013 slightly below the BoCs 2% target. Core inflation should also follow a similar pattern. Policy: With considerable monetary stimulus in place, but growth remaining weak, we expect the BoC to remain on hold until mid-2014. However, we believe that the BoC is unlikely to cut rates as monetary policy is less efficient and the BoC worries it could reignite household debt accumulation. On fiscal policy, weaker tax revenues due to slower growth and lower commodity prices and inflexibility on the timing for reaching budget balance will mean some spending cuts. Risks: We think the threat from a weak US economy due to fiscal policy remains the biggest negative risk to the Canadian economy. On the upside, domestic demand could prove to be more resilient than expected, and the US economy could perform better than expected.
Fig. 1: Details of the forecast

Charles St-Arnaud
+1 212 667 1986 charles.starnaud@nomura.com

% Real GDP Personal consumption Non residential fixed invest Residential fixed invest Government expenditures Exports Imports Contributions to GDP: Domestic final sales Inventories Net trade Unemployment rate Employment, 000 Consumer prices Core CPI Fiscal balance (% GDP) Current account balance (% GDP) Overnight target rate 3-month T-Bill 2-year government bond 5-year government bond 10-year government bond USD/CAD

1Q12 1.2 2.2 8.1 14.4 -1.1 -3.3 5.1 2.6 1.2 -2.7 7.4 36 2.3 2.1

2Q12 1.9 0.5 8.3 0.6 2.3 1.1 2.3 1.8 0.5 -0.4 7.3 113 1.6 2.0

3Q12 0.7 2.8 -0.4 -2.4 -1.5 -7.3 2.1 0.9 2.8 -2.9 7.3 26 1.2 1.5

4Q12 0.6 2.7 4.4 0.8 2.5 1.2 -1.0 2.7 -2.8 0.7 7.2 103 0.9 1.2

1Q13 1.4 2.0 2.0 0.0 0.3 2.3 2.2 1.4 0.0 0.0 7.3 20 0.6 1.0

2Q13 1.4 2.0 2.0 0.0 0.3 2.3 2.2 1.4 0.0 0.0 7.4 30 1.1 1.0

3Q13 1.7 2.0 3.2 0.0 0.3 3.8 3.1 1.5 0.0 0.2 7.5 40 1.7 1.4

4Q13 2.1 2.0 3.5 3.0 0.3 5.0 3.9 1.7 0.0 0.4 7.5 60 1.7 1.5

2012 1.8 1.9 6.2 5.8 -0.5 1.6 2.9 2.0 0.2 -0.4 7.3 69 1.5 1.7 -3.8 -3.4

2013 1.3 2.1 2.8 0.1 0.6 1.1 1.8 1.7 -0.2 -0.2 7.4 38 1.3 1.2 -3.0 -3.7 1.00 1.00 1.20 1.70 2.20 1.10

2014 2.0 1.9 3.9 3.2 0.3 4.7 3.9 1.7 0.0 0.3 7.3 63 2.0 2.0 -2.2 -3.7 1.50 1.60 1.90 2.40 2.80 1.02

1.00 0.91 1.20 1.57 2.11 1.00

1.00 0.87 1.03 1.21 1.74 1.02

1.00 0.97 1.07 1.31 1.73 0.98

1.00 0.92 1.14 1.37 1.80 0.99

1.00 1.00 1.00 1.30 1.90 1.05

1.00 1.00 1.00 1.30 1.90 1.07

1.00 1.00 1.00 1.50 2.00 1.08

1.00 1.00 1.20 1.70 2.20 1.10

1.00 0.92 1.14 1.37 1.80 0.99

Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates (saar). Inflation measures and calendar year GDP are year-over-year percent changes. Interest rate forecasts are end of period. Numbers in bold are actual values. Table reflects data available as of 8 March 2013. Source: Bank of Canada, Statistics Canada, Nomura Global Economics.

Nomura | Global Economic Outlook Monthly

11 March 2013

China | Economic Outlook


Rising inflation and a weak recovery pose a policy dilemma
The government will likely keep policy unchanged in the short term. Activity: Activity data were mostly weak in the first two months of 2013. Retail sales growth slowed sharply to 12.3% y-o-y in the combined January/February period, from 15.2% in December, while industrial production growth slowed to 9.9% from 10.3% y-o-y. Fixed asset investment growth picked up to 21.2% y-o-y (ytd) in February from 20.6% in December, but to a large extent was driven by real-estate investment which is likely to be only temporary due to policy tightening in this sector. The official PMI surprisingly fell to 50.1 in February from 50.4 in January and the HSBC PMI dropped to 50.4 after a jump to 52.3 in January. We see downside risks to our forecast for GDP growth at 8.2% y-o-y in Q1. Inflation: CPI Inflation rose to 3.2% y-o-y in February from 2.0% in January, due to rising food prices and positive base effects. The government lowered its CPI inflation target to 3.5% in 2013 from 4.0% last year. At the National Peoples Congress (NPC), outgoing Premier Wen Jiabo cited rising prices in food, labour and natural resources, imported inflation from QE in major economies, and the need to reform energy prices as the primary drivers. This suggests to us that further price hikes in energy and public utilities will be implemented in H1. Policy: Monetary policy maintained a loose stance. Total social financing hit an all-time high of RMB2.5trn in January and remained high in February. M2 growth jumped to 15.9% y-o-y in January and was 15.2% in February, up from 13.8% in December. The government announced tightening measures on the property market and set an M2 growth target for 2013 at 13% at the NPC, down from 14% in 2012. In the short term we expect the government to keep policy unchanged as both growth and inflation face uncertainty but rising inflation will likely force policy tightening in H2 2013. Risks: We see three key risks to our forecast. The largest risk is policy uncertainty, as political pressure could force the government to maintain its currently loose policy stance longer than we expect. The second is inflation, which may rise more slowly than we expect and delay policy tightening. The third is external demand, given the uncertain outlook of EU and US economies.
Details of the forecast

Zhiwei Zhang
+852 2536 7433 zhiwei.zhang@nomura.com

Wendy Chen
+86 21 6193 7237 wendy.chen@nomura.com

% y-o-y growth unless otherwise stated Real GDP Consumer prices Core CPI Retail sales (nominal) Fixed-asset investment (nominal, ytd) Industrial production (real) Exports (value) Imports (value) Trade surplus (US$bn) Current account (% of GDP) Fiscal balance (% of GDP) New increased RMB loans (CNY trn) 1-yr bank lending rate (%) 1-yr bank deposit rate (%) Reserve requirement ratio (%) Exchange rate (CNY/USD)

1Q12 8.1 3.8 1.5 14.9 20.9 11.6 7.6 6.9 0.2

2Q12 7.6 2.9 1.3 13.9 20.4 9.5 10.4 6.4 68.4

3Q12 7.4 1.9 1.5 13.5 20.5 9.1 4.4 1.4 79.2

4Q12 7.9 2.1 1.5 14.9 20.6 10.0 9.5 2.8 83.4

1Q13 8.2 2.5 2.0 16.2 21.0 10.8 3.0 7.0 -16.9

2Q13 8.0 3.0 2.1 15.9 21.2 10.5 4.0 8.0 52.9

3Q13 7.4 3.6 2.4 15.5 21.3 9.6 6.0 9.0 70.1

4Q13 7.2 4.8 2.1 15.6 22.0 9.6 6.0 9.0 74.3

2012 7.8 2.6 1.5 14.2 20.6 10.1 7.9 4.4 231.2 2.6 -1.6 8.2 6.00 3.00 20.0 6.29

2013 7.7 3.5 2.2 15.8 22.0 10.1

2014 7.5 4.0 2.0 16.0 20.0 9.7

4.9 6.0 8.3 10.0 180.3 122.0 1.0 -0.4 -1.5 -1.6 9.0 6.50 3.50 20.0 6.15 9.0 6.5 3.5 19.0 6.14

6.56 3.50 20.5 6.31

6.31 3.25 20.0 6.32

6.00 3.00 20.0 6.34

6.00 3.00 20.0 6.29

6.00 3.00 20.0 6.22

6.00 3.00 20.0 6.18

6.25 3.25 20.0 6.16

6.50 3.50 20.0 6.15

Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. The CNY/USD forecast is for the fixing rate, not the spot rate. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 11 March 2013. Source: CEIC and Nomura Global Economics.

Nomura | Global Economic Outlook Monthly

11 March 2013

Euro area | Economic Outlook


ECB continues to resist rate cut on recovery expectations
The ECB's recovery scenario could be challenged by lack of policy pass-through Activity: Q4 GDP was 0.1pp weaker than we forecast at -0.6% q-o-q, though the forwardlooking survey data continue to suggest a slowing in the pace of contraction and we have revised up our Q1 forecast to -0.1% q-o-q (see also Pace of contraction to slow in Q1, 14 February). Global trade has led to a short-term recovery, but a strong and sustained recovery is needed to offset weak euro area domestic demand. Our baseline remains one of deep recession in countries most under stress in 2013. Inflation: The recent decline in oil prices has pushed our euro area headline inflation forecast down to 1.6% this year (from 1.8%) and to 1.4% in 2014 (from 1.5%). The inflation outlook remains characterised by contained core inflation due to weak domestic demand (the biggest downside risk). The main upside risk remains further administered price/indirect tax increases. Policy: The ECB was marginally more dovish in March as weaker projections led to a loss of unanimity on rates, but not by enough to trigger a cut. Those against lower rates continue to put faith in a recovery in the second half of the year, leaving us in data-dependent mode, although we do not think the data will be weak enough for the ECB to cut in April. Furthermore, despite the loss of unanimity, we see no other major signals that strongly suggest the ECB intends to cut rates next month. Continued emphasis on medium-term expectations suggests these have to change for the ECB to act, putting the spotlight on Junes Eurosystem staff projections as the next major evaluation of the outlook. We continue to expect the refi rate to be cut by 25bp at this meeting (and most likely the corridor narrowed given the ongoing reluctance for negative rates). Mr Draghi says the ECB will remain accommodative and in full allotment mode for as long as is needed a weak form of forward guidance and a possible trade-off for those pushing for lower rates (see Angst of the weak (Post ECB meeting), 7 March). We expect pressure on the ECB to ease financing conditions to remain elevated, in both conventional and unconventional terms because of the extraordinarily tight financing conditions in the periphery (see Italian SME credit crunch: economic challenges and policy opportunities, 4 March). Risks: The ECBs OMT has provided a powerful safety net for the periphery and prevented Spain and Italy from losing market access. Markets have essentially bought on the promise of a backstop. In our view, this will be another testing year for solidarity against a backdrop of weak economic activity and lack of pass-through to lending rates in the periphery is a key policy challenge. Downside risks to the outlook include significant political risks including in Italy, see Italian elections: Risk of ungovernability to be priced by the market, 26 February and appetite for structural reform in some countries. On the upside, the most significant risk is a loosening of fiscal targets, in view of the importance of fiscal multipliers in our forecasts.
Details of the forecast
% Real GDP Household consumption Fixed investment Government consumption Exports of goods and services Imports of goods and services Contributions to GDP: Domestic final sales Inventories Net trade Unemployment rate Compensation per employee Labour productivity Unit labour costs Fiscal balance (% GDP) Current account balance (% GDP) Consumer prices ECB main refi. rate 3-month rates 10-yr bund yields $/euro 2.5 0.75 0.22 1.41 1.29 2.3 0.75 0.19 1.30 1.31 1.8 0.75 0.25 1.32 1.30 1.6 0.50 0.18 1.35 1.28 1.6 0.50 0.20 1.48 1.25 1.5 0.50 0.20 1.60 1.23 1.4 0.50 0.20 1.64 1.5 0.50 0.20 1.68 3Q12 -0.3 -0.4 -3.2 -0.5 4.1 0.2 -0.9 -1.3 1.9 11.5 1.8 0.5 1.6 4Q12 -2.4 -1.6 -4.5 -0.3 -3.6 -3.6 -1.8 -0.4 -0.2 11.7 1.4 0.2 1.4 1Q13 -0.6 -1.7 -5.6 -0.8 0.6 -2.8 -2.2 0.0 1.6 11.9 1.0 -0.1 1.3 2Q13 -0.6 -1.5 -4.5 -0.8 1.6 -2.1 -1.9 -0.5 1.7 12.0 0.8 0.1 1.0 3Q13 -0.2 -1.5 -3.9 -0.8 2.6 -0.8 -1.7 -0.1 1.6 12.1 0.4 -0.3 0.7 4Q13 -0.1 -1.5 -3.6 -0.8 2.6 -0.4 -1.6 0.1 1.5 12.2 0.3 0.1 0.2 1Q14 0.2 -1.3 -3.0 -0.4 3.1 0.6 -1.3 0.2 1.3 12.3 0.3 0.3 0.0 2Q14 0.1 -1.3 -2.8 -0.4 2.7 0.7 -1.3 0.3 1.0 12.3 0.5 0.4 0.1 2012 -0.5 -1.2 -4.0 -0.1 2.8 -1.0 -1.5 -0.8 1.7 11.4 1.7 0.4 1.5 -3.3 1.2 2.5 0.75 0.19 1.30 1.31 2013 -0.8 -1.5 -4.6 -0.7 1.1 -1.8 -1.8 -0.4 1.3 12.1 0.6 -0.1 0.8 -3.2 0.4 1.6 0.50 0.20 1.60 1.23 2014 0.0 -1.4 -3.2 -0.5 2.7 0.2 -1.4 0.2 1.3 12.3 0.6 0.5 0.1 -3.0 0.8 1.4 0.50 0.20 1.75 -

Jacques Cailloux +44 20 7102 2734 Nick Matthews jacques.cailloux@nomura.com +44 20 7102 5126
nick.matthews@nomura.com

Nick Matthews Jacques Cailloux +44 20 7102 5126 +44 20 7102 2734 nick.matthews@nomura.com jacques.cailloux@nomura.com Stella Wang Stella Wang +44 20 7102 0599 +44 20 7102 0599 stella.wang@nomura.com stella.wang@nomura.com

Notes: Quarterly real GDP and its contributions are seasonally adjusted annualised rates. Unemployment rate is a quarterly average as a percentage of the labour force. Compensation per employee, labour productivity, unit labour costs and inflation are y-o-y percent changes. Interest rate and exchange rate forecasts are end of period levels. Numbers in bold are actual values, others forecast. Table reflects data available as of 8 March 2013. Source: Eurostat, ECB, DataStream, Nomura Global Economics.

Nomura | Global Economic Outlook Monthly

11 March 2013

Hong Kong | Economic Outlook


Hong Kong: Fiscal stimulus
The 2013-14 budget focusses on increasing social welfare spending.
Activity: Real GDP growth increased to 2.6% y-o-y in Q4, led by a pick up in private consumption and exports. Retail sales growth in volume terms also remained strong, at 10.4% in January from 8.5% in December, while the PMI remained in the expansion zone at 51.2 in February, albeit down from January. We expect private consumption to remain robust, underpinned by a tight labor market, positive wealth effects from buoyant property prices and increasing visitor numbers from mainland China. Further, domestic fixed asset investment should remain strong, led by infrastructure works. We expect fiscal stimulus and a moderate improvement in external demand to lift real GDP growth from 1.4% in 2012 to 2.5% in 2013. Inflation: CPI inflation eased to 3.0% y-o-y in January from 3.8% in December, largely on base effects created by the lunar new year holiday, and hence we expect a payback in February. Thereafter, inflation should rise through 2013, driven by higher food, fuel and rent prices, only partly offset by inflation-mitigating fiscal measures such as a temporary waiver of public housing rent and electricity subsidies. We expect CPI inflation to rise from 4.1% in 2012 to 4.3% in 2013. Policy: Hong Kong's FY13 (April 2013 to March 2014) fiscal policies are more expansionary than in FY12. The government expects the fiscal balance to shift to a deficit of HKD4.9bn in FY13 from a surplus of HKD64.9bn in FY12 due to increased expenditures. The budget includes a reduction in taxes and an increase in the child allowance for low income families; a subsidy for electricity; and two months waiver of rent payments for public housing tenants. We also expect the government to continue implementing more macroprudential property tightening measures, such as hikes in the stamp duty if house prices continue to rise. Because of the USD/HKD peg, Hong Kong is importing the super-loose monetary policy of the US, and it remains unclear whether tighter macroprudential measures can provide a sufficient offset in the long run. Risks: As a small, open economy and financial hub, Hong Kong is one of the most vulnerable in Asia to weakness in the global economic outlook. An economic hard landing in China would be especially detrimental through both trade and financial channels.
Details of the forecast
% y-o-y growth unless otherwise stated Real GDP (sa, % q-o-q, annualized) Real GDP Private consumption Government consumption Gross fixed capital formation Exports (goods & services) Imports (goods & services) Contributions to GDP (% points) Domestic final sales Inventories Net trade (goods & services) Unemployment rate (sa, %) Consumer prices Exports Imports Trade balance (US$bn) Current account balance (% of GDP) Fiscal balance (% of GDP) 3-month Hibor (%) Exchange rate (HKD/USD) 1Q12 1.5 0.7 6.3 3.3 12.5 -3.6 -1.6 7.4 -1.7 -4.4 3.3 5.2 -1.2 0.9 -12.7 2Q12 -0.4 1.2 2.8 4.1 5.7 0.3 0.9 3.6 -1.3 -1.3 3.3 4.2 2.0 2.3 -15.9 3Q12 3.4 1.1 2.8 4.0 8.3 3.0 3.8 4.3 -1.0 -1.6 3.5 3.1 4.4 5.0 -15.6 4Q12 4.9 2.6 4.5 3.2 6.0 5.0 6.4 5.6 -0.3 -2.6 3.3 3.8 7.4 8.4 -17.4 1Q13 0.6 2.1 3.2 3.5 5.8 4.5 5.1 3.8 -0.5 -1.1 3.4 3.7 9.2 9.5 -14.2 2Q13 1.1 2.5 3.4 3.7 5.8 5.0 5.5 4.0 -0.2 -1.4 3.4 4.3 10.4 10.5 -17.6 3Q13 5.2 2.9 3.6 3.8 5.7 5.0 6.2 4.2 1.2 -2.3 3.4 4.5 10.1 10.9 -18.3 4Q13 2.8 2.4 4.5 4.2 5.8 5.5 6.9 4.8 0.6 -2.9 3.4 4.6 10.4 11.7 -21.0 2012 1.4 4.0 3.7 9.1 1.3 2.5 5.2 -1.1 -2.5 3.4 4.1 3.2 4.3 -61.6 1.5 3.3 0.40 7.75 2013 2.5 3.7 3.8 5.8 5.0 6.0 4.2 0.3 -1.9 3.4 4.3 10.0 10.7 -71.2 -0.1 -0.2 0.40 7.75 2014 3.5 4.4 4.4 6.1 7.2 7.7 4.8 -0.2 -1.2 3.2 4.3 12.3 12.5 -80.9 -0.7 -0.5 0.40 7.75

Young Sun Kwon


+852 2536 7430 youngsun.kwon@nomura.com

Aman Mohunta
+91 22 6617 5595 aman.mohunta@nomura.com

0.40 7.76

0.40 7.76

0.40 7.75

0.40 7.75

0.40 7.75

0.40 7.75

0.40 7.75

0.40 7.75

Source: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.

Nomura | Global Economic Outlook Monthly

11 March 2013

Hungary | Economic Outlook


Unorthodox policy focus shifts to non-independent central bank
We expect the government's unorthodox approach to continue in 2013 with the building of a state-owned retail banking sector and a new MNB governor adding risks.
Policy, fiscal and funding: The government has continued to fund itself domestically because of excess liquidity and a lack of lending by banks, combined with inflows by foreigners still seeing attractive carry. On external debt, a mixture of derivatives and cash management, combined with swapping out of domestic issuance and drawing down of deposits, has meant that funding has been fine and should remain so through to July. Governor Matolcsy wants an FX devaluation to boost growth (even if the cabinet was split on the issue). In our view, he will not hike rates to prevent one nor waste FX reserves on intervention when they will be needed for clearing up the mess of a devaluation on bank and household balance sheets. There could be a little verbal intervention to ensure the progression of the devaluation is orderly and timed correctly (i.e. when it is ready with FX mortgage policies). Varga may take part in this verbal intervention with his credibility. We expect FX issuance early this year to total around EUR2.5bn. Adding to the recently suggested residency bond and retail issuance, and we think this years EUR7bn funding requirement can easily be met. Fiscal policy remains controlled, but only because of repeated austerity packages, partly to reduce funding requirements and remove the threat of EDP sanctions. However, we doubt such low deficit levels can be sustained in the medium run. This situation is likely to be repeated again this year, with the governments revenue assumptions based on growth nearly 1pp higher than our own. Rates and inflation: We expect headline inflation to remain elevated until the end of 2014 on a mixture of tax pass-through and pressure from wages and policy. That said, underlying core ex VAT inflation should remain around the bottom edge of the target through the next two years because of a lack of demand. EUR/HUF is not the key to rate moves, it is wider risk premia, in our view. Hence our baseline has been for rate cuts to continue until after the market blows up in EURHUF. Rates could go as low as 4.00%. We have pencilled in 4.50% as the end point, but have stressed this was an irrelevant number and it is more about how they react vs currency/risk premia. Since the appointment of Matolcsy as governor, there has been the removal of independence and the centralisation of power under the governor. We think the action is still to come but as we have said before, it will be step by step not a big bang. Growth: We forecast growth in 2013 to remain in negative territory, and expect the economy to show no recovery for another year. Our key concern is potential growth declining over the past four years from 4.0% before the crisis, first to 2.5% by 2010, then 1.75% by this year, but perhaps as low as 1.0% by 2014 thanks to the government's latest austerity packages.

Peter Attard Montalto


+44 (0) 20 710 28440 peter.am@nomura.com

Figure 1. Details of the forecast


2011 Real GDP % y-o-y Nominal GDP USD bn Current account % GDP Fiscal balance % GDP Structural balance CPI % y-o-y * CPI % y-o-y ** Core CPI ex VAT % y-o-y ** Unemployment rate % Reserves EUR bn *** External debt % GDP*** Public debt % GDP MNB policy rate %* EURHUF* 1.7 140.2 1.4 -6.2 -5.0 4.1 3.9 2.6 10.7 35.1 138.9 82.8 7.00 315 2012 -2.7 155.7 2.5 -2.9 -6.5 5.0 5.7 2.0 10.7 31.8 131.6 78.6 5.75 291 2013 -0.5 134.0 1.5 -3.2 -5.7 5.0 4.0 2.7 10.4 28.1 130.6 79.2 4.00 320 2014 0.9 136.6 1.0 -3.3 -4.0 4.9 5.4 3.7 10.2 25.0 132.6 79.0 4.00 320

Figure 2. Headline and core ex-VAT CPI.


7 6

pp y-o-y

Tax Non-core ex VAT Core ex VAT

5 4
3 2 1

0 Jan-2011

Jan-2012

Jan-2013

Jan-2014

Notes: * End of period. ** Period average. Bold is actual data. *** Includes IMF/EU funds.

Source: Nomura Global Economics

10

Nomura | Global Economic Outlook Monthly

11 March 2013

India | Economic Outlook


Politics trumps economics
With the government likely to increase spending ahead of the elections in 2014, macro imbalances should continue and growth will likely disappoint. Forecast change: We have revised our 2013 GDP growth forecast down to 5.2% (from 6.1%) and our current account balance forecast down to -5.3% of GDP in 2013 (from -4.7%) and 4.2% in 2014 (from -3.9%). Activity: Sharp cutbacks in government spending and a slowdown in the financial sector dragged down GDP growth to 4.5% y-o-y in Q4 2012. Although growth appears to have bottomed, in the absence of any positive triggers in the near term we expect GDP growth to remain below 5% in H1 2013, with a cyclical pick up from Q4 2013 due to increased government spending ahead of the general election in 2014. However, new capex projects remain moribund, and we see no pick up in sight. As a result, supply-side constraints remain binding and suggest limited spare capacity to accommodate a significant pickup in demand (without generating inflationary pressures and/or a widening trade deficit). Inflation: Price pressures have eased and we expect WPI inflation to remain below 7% in Q1 2013 due to the lagged impact of a negative output gap, falling input costs and a delay in updating the coal price index of the WPI basket. However, we expect WPI inflation to start rising again in Q2 2013 due to higher food prices and the release of some fiscally suppressed inflation, as subsidies and price controls are relaxed a little. INR depreciation is likely to intensify inflationary pressures from Q3 2013. Further, double-digit CPI inflation suggests that underlying pressures remain strong, notwithstanding the fall in WPI inflation. Policy: The Reserve Bank of India (RBI) cut its repo rate by 25bp in January and we expect another 25bp cut in May given the fall in WPI inflation. However, with inflation likely to rise again from Q2 and a worsening current account deficit, we expect policy rates to remain on hold in H2 2013. The government achieved its fiscal deficit target of 5.2% of GDP in FY13, which is lower than the revised target of 5.3%, and has budgeted for a fiscal deficit of 4.8% in FY14. However, we expect the fiscal deficit to remain at 5.2% in FY14, as we believe the government is likely to miss its revenue target, and the elections due in 2014 will limit its ability to cut expenditures. Risks: A reversal of capital flows, a sharp rise in oil prices, a deeper and prolonged global slowdown and weather-related shocks are the key downside risks. Lower commodity prices, a stronger-than-expected global recovery and a quick investment revival are upside risks.
Details of the forecast
% y-o-y growth unless otherwise stated Real GDP (sa, % q-o-q, annualized) Real GDP Private consumption Government consumption Fixed investment Exports (goods & services) Imports (goods & services) Contributions to GDP (% points) Domestic final sales Inventories Net trade Wholesale price index Consumer price index Current account balance (% GDP) Fiscal balance (% GDP) Repo rate (%) Reverse repo rate (%) Cash reserve ratio (%) 10-year bond yield (%) Exchange rate (INR/USD) 1Q12 5.9 5.3 9.7 7.6 2.6 13.4 24.3 2.5 -1.1 4.0 7.5 8.6 2Q12 5.3 5.5 2.0 8.3 -4.6 7.2 3.9 4.4 1.2 -0.2 7.5 10.2 3Q12 6.0 5.3 2.0 8.0 -1.0 5.2 13.8 5.5 1.2 -1.4 7.9 9.9 4Q12 2.5 4.5 4.6 1.9 6.0 -2.1 -0.3 2.3 1.1 1.1 7.2 10.1 1Q13 1.7 4.7 4.0 2.0 4.0 1.5 2.0 12.0 1.0 -8.3 6.8 10.7 2Q13 9.0 4.8 4.7 5.5 7.2 4.5 8.2 6.6 -0.1 -1.7 7.1 9.8 3Q13 8.1 5.2 4.9 6.5 4.3 6.5 6.5 6.0 0.0 -0.8 7.2 9.6 4Q13 5.4 6.0 5.2 8.0 4.5 8.6 10.2 7.2 0.1 -1.3 7.5 9.1 2012 5.1 4.5 6.2 0.7 5.8 9.8 3.6 0.6 1.0 7.5 9.7 -4.9 -5.2 8.00 7.00 4.25 8.05 55.0 2013 5.2 4.7 5.5 5.0 5.2 6.7 8.0 0.3 -3.1 7.1 9.8 -5.3 -5.2 7.50 6.50 4.25 7.50 59.0 2014 6.6 5.3 6.2 6.5 10.3 9.2 7.1 0.2 -0.6 6.8 8.1 -4.2 -5.0 7.00 6.00 4.75 7.00 56.0

Sonal Varma
+91 22 4037 4087 sonal.varma@nomura.com

Aman Mohunta
+91 22 6617 5595 aman.mohunta@nomura.com

8.50 7.50 4.75 8.54 51.2

8.00 7.00 4.75 8.18 54.0

8.00 7.00 4.50 8.15 52.7

8.00 7.00 4.25 8.05 55.0

7.75 6.75 4.25 7.80 53.0

7.50 6.50 4.25 7.80 55.5

7.50 6.50 4.25 7.70 60.0

7.50 6.50 4.25 7.50 59.0

Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. CPI is with base year 2010. Fiscal deficit is for the central government and for fiscal year, e.g, 2012 is for the year ending March 2013. Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.

11

Nomura | Global Economic Outlook Monthly

11 March 2013

Indonesia | Economic Outlook


Indonesia: Still a case to tighten
A combination of recent increases in inflation and persistently weak external balances makes a compelling case for BI to hike rates. Activity: Monthly indicators for January, including the consumer confidence index, motorcycle and cement sales and strong import growth, suggest that consumption demand remained strong. This, along with higher government spending ahead of the 2014 elections, supports our 2013 GDP growth forecast of 6.1% GDP. But the sustainability of growth is becoming more worrisome. Merchandise exports improved in January, but we still see upside risks to our current account deficit forecast of 1.9% of GDP this year, because of robust imports. Without reducing fuel subsidies or tightening monetary policy, the risk is that domestic demand increasingly outstrips supply. Inflation and monetary policy: CPI inflation jumped to 5.3% y-o-y in February from 4.6% in January, approaching the upper limit of Bank Indonesias (BI) 3.5-5.5% target range. The increase was largely due to higher food prices, as core inflation remained stable at 4.3%. We continue to expect inflationary pressures to persist given the electricity tariff adjustments, the lagged impact of IDR depreciation and elevated inflation expectations (see Asia Insights: Indonesia: Inflation jumps in February, 1 March 2013). This, combined with persistently weak external balances, bolsters the case for BI to act. Our base case calls for 50bp of policy rate hikes in H2. Raising the FASBI rate (the lower bound of the interest rate corridor) can occur sooner, which would be a signal that BI is moving toward a tightening bias. Fiscal policy: Our recent trip to Jakarta confirmed the low likelihood of fuel subsidy cuts this year (see Asia Insights: Indonesia: Postcard from Jakarta, 25 February 2013). That said, we continue to expect the government to improve its execution on infrastructure spending and other capital expenditures. Some positive signs of this include progress made on the development of the Jakarta Mass Rapid Transit system. All told, we expect higher operating expenditures to increase the 2013 deficit to 2.0% of GDP (versus the budgeted 1.65%). Risks: The key risk we see is the implementation of more protectionist and populist policies ahead of the elections, which could damage already-fragile investor sentiment and slow FDI inflows. On the external front, weaker growth in the EU, US and China also pose downside risks.
Details of the forecast
% y-o-y growth unless otherwise stated Real GDP (sa, % q-o-q, annualized) Real GDP Private consumption Government consumption Gross fixed capital formation Exports (goods & services) Imports (goods & services) Contributions to GDP (% points) Domestic final sales Inventories Net trade (goods & services) Consumer prices Exports (goods) Imports (goods) Trade balance (US$bn) Current account balance (% of GDP) Fiscal Balance (% of GDP) Bank Indonesia rate (%) Exchange rate (IDR/USD) 1Q12 6.3 4.9 6.4 10.0 8.2 8.9 5.5 2.0 0.6 3.7 5.3 21.6 1.7 -1.4 5.75 9146 2Q12 6.4 5.2 8.6 12.5 2.6 11.3 6.5 2.3 -3.0 4.5 -8.2 9.7 -2.1 -3.5 5.75 9433 3Q12 6.2 5.6 -2.8 9.8 -2.6 -0.2 5.2 -0.1 -1.2 4.5 -13.0 -0.3 0.6 -2.4 5.75 9591 4Q12 6.1 5.4 -3.3 7.3 0.5 6.8 4.5 3.1 -2.5 4.4 -7.9 4.6 -2.7 -3.6 5.75 9790 1Q13 6.1 5.5 7.0 9.8 6.0 6.5 5.7 -0.2 0.4 4.6 7.0 6.0 1.6 -1.2 5.75 9900 2Q13 6.2 5.8 8.0 8.9 6.0 7.0 6.0 -0.3 0.1 5.1 9.0 7.0 -1.1 -2.0 5.75 10000 3Q13 6.0 5.7 10.0 8.8 7.0 5.5 6.1 0.0 1.3 5.4 8.0 8.0 2.7 -1.3 6.25 9900 4Q13 6.0 5.5 10.0 7.9 9.0 8.0 6.1 0.5 1.2 5.5 9.0 10.5 -3.5 -3.2 6.25 9900 2012 6.2 5.3 1.2 9.8 2.0 6.6 6.0 1.8 -1.5 4.3 -6.3 8.3 -2.4 -2.7 -1.8 5.75 9790 2013 6.1 5.6 9.0 8.7 7.0 6.8 5.3 0.0 0.7 5.2 8.2 7.9 -0.3 -1.9 -2.0 6.25 9900 2014 6.2 5.6 7.0 9.0 10.0 11.9 6.0 -0.3 0.2 5.1 10.4 12.0 -0.9 -1.7 -2.2 6.75 9700

Euben Paracuelles
+65 6433 6956 euben.paracuelles@nomura.com

Lavanya Venkateswaran
+91 22 3053 3053 lavanya.venkateswaran@nomura.com

Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.

12

Nomura | Global Economic Outlook Monthly

11 March 2013

Japan | Economic Outlook


We forecast 0.9% y-o-y growth in 2013
We expect stronger exports and the Abe administrations emergency stimulus package to result in real GDP growth of 0.9% y-o-y in 2013. Forecast change: We revised up our real GDP growth forecasts from 0.7% to 1.0% for 2013 and from 1.3% to 1.9% for 2014. Activity and fiscal policy: The Japanese economy fell into recession around last April. However, we think the economy bottomed out in Q4 2012 and began a recovery phase, supported by the recovery in Chinese domestic demand. We expect Japan's export recovery to become stronger because Chinas economic recovery is boosting trade within Northeast Asia and the yen continues to weaken against most currencies, including the Korean won. This should have a knock-on effect for domestic demand and lead to a typical export-led recovery in the Japanese economy. In terms of fiscal policy, the Abe administration has boosted public works spending substantially via its emergency stimulus package and the FY13 budget. These stimulus measures should also help support the economy. Inflation and monetary policy: On 22 January the Bank of Japan (BOJ) announced the introduction of a 2% price stability target and a move to an open-ended asset purchase program from 2014. At the same time, the Japanese government and the BOJ issued a joint statement saying that the Council on Economic and Fiscal Policy (CEFP) will examine monetary policy, price movements and price forecasts every three months. We expect the new BOJ governor and two deputy governors to take over on 20 March. All these points indicate that the BOJ's policy stance is likely to loosen substantially from April. We expect additional easing measures to be discussed at the policy board meeting on 34 April. However, because there is little time between the inauguration of the new governor and deputy governors and this meeting, our main scenario is that the policy board will decide to extend the maturity of JGBs targeted by its asset purchasing program from around three years to around five and expand the program by JPY10trn, as it should be easy for the incoming policy board members to form a consensus with the current members on these measures. Risks: External factors continue to represent the main risks to the economy. These include an expansion and/or a prolonging of the risks associated with Euro government debt and a decline in confidence in US economic policy, both of which would probably have a negative impact on the economy via, higher volatility, a stronger yen strengthening and a fall in share prices.
Details of the forecast
% Real GDP Private consumption Private non res fixed invest Residential fixed invest Government consumption Public investment Exports Imports Contributions to GDP: Domestic final sales Inventories Net trade Unemployment rate Consumer prices Core CPI Fiscal balance (fiscal yr, % GDP) Current account balance (% GDP) Unsecured overnight call rate JGB 5-year yield JGB 10-year yield JPY/USD 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0.32 0.22 0.19 0.19 0.12 0.16 0.25 0.44 0.99 0.83 0.77 0.80 0.74 0.81 0.95 1.14 82.9 79.8 78.0 86.8 93.0 95.0 93.0 93.0 1Q12 6.1 5.0 -9.5 -6.5 6.3 38.4 14.2 8.6 4.1 1.2 0.8 4.5 0.3 0.1 2Q12 -0.9 -0.1 -0.3 9.1 1.7 27.1 0.2 6.8 1.9 -1.6 -1.2 4.4 0.2 0.0 3Q12 -3.7 -1.9 -12.5 6.8 1.6 10.7 -19.0 -1.9 -1.7 0.8 -2.8 4.3 -0.4 -0.2 4Q12 0.2 2.0 -5.7 14.9 2.7 7.2 -14.0 -9.0 1.8 -0.8 -0.8 4.2 -0.2 -0.1 1Q13 1.7 1.6 2.6 5.7 1.4 6.1 2.2 3.5 1.7 0.2 -0.2 4.2 -0.3 -0.1 2Q13 2.5 0.4 4.6 3.7 1.4 7.9 6.7 5.4 1.6 0.7 0.2 4.1 0.0 0.0 3Q13 3.0 1.2 6.6 5.0 1.2 13.4 6.4 4.4 2.5 0.2 0.3 4.0 0.4 0.2 4Q13 3.7 2.1 6.5 6.9 1.2 11.2 7.1 5.5 3.1 0.3 0.3 3.9 0.5 0.4 2012 2.0 2.4 2.1 2.9 2.7 12.5 -0.3 5.3 2.9 0.0 -0.9 4.3 0.0 -0.1 -9.0 1.0 2013 1.0 0.9 -0.3 7.3 1.6 9.9 -2.4 1.2 1.4 0.1 -0.5 4.1 0.1 0.1 -9.1 0.8 2014 1.9 1.2 6.0 -0.2 1.2 -3.3 7.3 5.3 1.5 0.0 0.4 3.9 2.3 2.3 -7.5 1.0

Shuichi Obata
+81 3 6703 1295 shuichi.obata@nomura.com

0-0.10 0-0.10 0-0.10 0.19 0.44 0.63 0.80 1.14 1.33 86.8 93.0 100.0

Note: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. Unemployment rate is as a percentage of the labor force. Inflation measures and CY GDP are y-o-y percent changes. Interest rate forecasts are end of period. Fiscal balances are for fiscal year and based on general account. Table reflects data available as of 8 March. All forecasts are modal forecasts (i.e., the single most likely outcome). Numbers in bold are actual values, others forecast. Source: Cabinet Office, Ministry of Finance, Statistics Bureau, BOJ, and Nomura Global Economics.

13

Nomura | Global Economic Outlook Monthly

11 March 2013

Malaysia | Economic Outlook


Malaysia: All eyes on the elections
GDP growth remained robust in 2012 and the momentum is likely to continue this year, but a lot is dependent upon the outcome of the upcoming elections. Activity: The economy grew by 6.4% y-o-y in Q4 2012 from 5.3% in Q3, driven by strong domestic demand, namely from private consumption and investment spending. This took fullyear GDP growth to a robust 5.6% in 2012 (5.1% in 2011). The outlook for this year rests on the upcoming general elections, which we think will likely be held in April. For now, we maintain our forecast for 2013 GDP growth to average 4.3%, given the need for the government to move quickly to fiscal consolidation after the election to avoid exceeding its self-imposed debt limit. However, admittedly there are upside risks given the strong economic momentum. Inflation and monetary policy: January CPI inflation rose by 1.3% y-o-y from 1.2% in December, largely driven by higher food prices. We estimate core inflation also rose by 1.4% y-o-y from 1.3% in December, consistent with the strength in domestic demand. We maintain our forecast for CPI inflation to average 2.4% y-o-y in 2013. Furthermore, the uptick in January inflation justifies Bank Negara Malaysias (BNM) slightly more hawkish stance at its 31 January meeting. As such, we continue to expect BNM to hike the policy rate by 50bp in H2 to 3.50% as it looks to normalize rates to avoid not only inflation, but overheating pressures more generally. Fiscal policy and political outlook: The government met its fiscal deficit target of 4.5% of GDP in 2012, but the details continue to underscore the need for fiscal reforms. More positively, our recent trip to Kuala Lumpur bolstered our confidence in the governments commitment to reform. That said, we expect the fiscal impulse to remain positive until the elections, after which spending cutbacks are likely. We continue to forecast a deficit of 4.5% of GDP versus the target of 4%, given the political cycle. We expect the elections to be called between 6-20 April and our baseline (assigned a 60% probability) remains for the incumbents to retain power, but with a smaller majority (see Asia Insights: Postcard from Malaysia, 26 February 2013). Risks: With exports at nearly 100% of GDP, a sharp drop in commodity prices and another global recession are the biggest downside risks. A weaker-than-expected coalition or an opposition victory would raise questions about the political transition and the reform agenda.
Details of the forecast
% y-o-y growth unless otherwise stated Real GDP Private consumption Government consumption Gross fixed capital formation Exports (goods & services) Imports (goods & services) Contributions to GDP (% points) Domestic final sales Inventories Net trade (goods & services) Unemployment rate (%) Consumer prices Exports Imports Merchandise trade balance (USD bn) Current account balance (% of GDP) Fiscal Balance (% of GDP) Overnight policy rate (%) Exchange rate (MYR/USD) 1Q12 5.1 7.4 9.1 16.2 2.8 6.8 8.3 -0.2 -3.1 3.0 2.3 3.3 6.2 9.7 8.0 3.00 3.06 2Q12 5.6 8.8 10.9 26.1 2.1 8.1 11.8 -1.2 -4.9 3.0 1.7 -0.3 5.5 6.8 4.1 3.00 3.18 3Q12 5.2 8.5 2.3 22.7 -3.0 4.4 9.8 2.2 -6.8 3.0 1.4 -4.7 3.9 5.5 4.0 3.00 3.06 4Q12 6.4 6.1 1.1 14.9 -1.5 -0.9 6.9 0.2 -0.6 3.2 1.3 0.6 3.9 8.7 9.4 3.00 3.06 1Q13 5.1 6.3 0.1 12.3 0.3 1.8 6.3 0.2 -1.3 3.2 2.1 4.6 8.8 8.2 4.8 3.00 3.10 2Q13 4.7 6.3 -3.0 12.0 1.1 3.3 6.2 0.3 -1.9 3.4 2.6 7.3 10.0 6.0 4.4 3.00 3.06 3Q13 4.2 6.2 -2.5 12.1 2.2 4.5 6.2 -0.2 -1.8 3.5 2.5 6.9 11.7 3.5 3.3 3.25 3.01 4Q13 3.2 5.4 -1.1 12.9 3.5 4.6 5.9 -2.1 -0.7 3.5 2.7 5.6 7.7 8.1 4.9 3.50 2.95 2012 5.6 7.7 5.0 19.9 0.1 4.5 9.2 0.3 -3.8 3.0 1.7 -0.3 4.8 30.8 6.4 -4.5 3.00 3.06 2013 4.3 6.1 -1.6 12.4 1.8 3.6 6.2 -0.5 -1.4 3.4 2.4 6.1 9.6 25.7 4.7 -4.5 3.50 2.95 2014 4.6 5.5 3.5 6.8 7.2 8.5 5.2 0.0 -0.6 3.4 2.5 8.4 13.1 17.8 4.2 -4.2 4.00 2.87

Euben Paracuelles
+65 6433 6956 euben.paracuelles@nomura.com

Lavanya Venkateswaran
+91 22 3053 3053 lavanya.venkateswaran@nomura.com

Note: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as 7 March 2013. Source: CEIC and Nomura Global Economics.

14

Nomura | Global Economic Outlook Monthly

11 March 2013

Mexico | Economic Outlook


2013: The year of reforms
The new government will embark on a series of important reforms in 2013.
Activity: We forecast the economy to expand by 3.0-3.5% y-o-y in 2013. While the US economy, the main trade partner of Mexico might remain weak, we expect Mexican domestic aggregate demand to remain resilient. Other risks include a sharper than anticipated contraction in the eurozone that drags down global growth. A fiscal reform to increase non-oil revenues and an energy reform to increase private sector participation will be the main focus of attention in 2013. Authorities will likely approve these two key structural reforms that should enhance potential growth and reduce vulnerabilities. Inflation: For 2013 we expect most of the supply-side shocks to dissipate; therefore, we forecast inflation to moderate from 3.6% in 2012 to 3.4-3.5% in 2013 and 2014. However, the 2014 forecast does not include the impact of the fiscal reform of imposing the VAT on food and medicines from their current 0% rate. Since the fiscal reform will likely be presented to Congress in September, at the earliest, we wont be able to re-calibrate the inflation forecast until then. If authorities increase the VAT for food and medicines to 16%, which is the rate for other goods, inflation would surpass 7.0% y-o-y. If authorities increase the VAT gradually, the impact on inflation could be significantly lower. Policy: After keeping the policy rate unchanged at 4.5% since July 2009, Banxico did a one-off 50bp rate cut to 4.0% in March 2013 on the argument that despite it sees an uptick in inflation in short term, inflation should converge to 3% target in medium term, and inflation expectations remain well anchored. Our medium-term view for the MXN remains sanguine due to the likely approval of the structural reforms. We forecast that MXN will strengthen to 12.00 by 4Q 2013. Risks: The main risk is a double-dip recession in the US economy, which seems unlikely. In terms of inflation, we see the following risks to our call: (1) pass-through effects due to MXN depreciation; (2) increases in gasoline prices; and the passage of the fiscal reform.

Benito Berber
+1 212 667 9503 Benito.Berber@nomura.com

Details of the forecast

% y-o-y change unless noted Real GDP Personal consumption Fixed investment Government expenditure Exports Imports Contributions to GDP (pp): Industry Agriculture Services CPI Trade balance (US$ billion) Current account (% GDP) Fiscal balance (% GDP) Gross public debt (% GDP) Overnight Rate % USD/MXN

1Q12 4.9 4.2 8.6 3.2 5.1 6.7 1.4 0.2 3.1 3.73 1.8

2Q12 4.4 3.4 6.2 2.2 6.4 4.8 1.3 0.2 2.8 4.34 1.5

3Q12 3.2 2.2 4.8 0.6 2.4 0.5 1.0 0.1 2.1 4.77 -4.1

4Q12 3.2 3.4 6.4 -4.5 4.5 3.1 0.9 0.1 2.0 3.57 -3.9

1Q13 2.9 3.4 2.3 -3.5 0.7 -1.5 0.9 0.1 1.9 3.55 -3.8

2Q13 3.6 5.8 3.6 0.7 0.0 0.3 1.1 0.1 2.3 3.50 -3.8

3Q13 3.2 0.9 3.2 2.1 4.4 2.3 0.9 0.1 2.0 3.45 -3.8

4Q13 3.1 3.4 3.2 2.0 2.8 3.9 0.9 0.1 2.0 3.40 -3.8

2012 3.9 3.3 6.5 0.3 4.6 3.6 1.2 0.2 2.5 4.11 -4.7 -1.5 -2.2 37.3

2013 3.5 3.3 3.1 1.9 2.0 1.3 1.0 0.1 2.2 3.40 -15.2 -1.5 -2.2 35.0 4.00 12.00

2014 4.5 4.5 4.0 2.8 4.0 3.5 1.3 0.2 2.9 3.50 -15.0 -1.5 -2.2 34.0 4.50 12.00

4.50 12.81

4.50 13.36

4.50 12.86

4.50 12.85

4.00 12.70

4.00 12.50

4.00 12.25

4.00 12.00

4.50 12.85

Notes: Annual forecasts for GDP and its components are year-over-year average growth rates. Annual CPI forecasts are year-over-year changes for Q4. Trade data are period sums. Interest rate and currency forecasts are end of period. Contributions to GDP do not include taxes. Numbers in bold are actual values, others forecast. Table reflects data available as of 11 March 2013. Source: Nomura Global Economics.

15

Nomura | Global Economic Outlook Monthly

11 March 2013

Philippines | Economic Outlook


Philippines: In a virtuous cycle
Growth remains supported by improving governance. Monetary policy is neutral with macroprudential tools remaining the preferred option for capital flow management.
Activity: Similar to 2012, we expect solid GDP growth of 6.4% y-o-y in 2013. Increased government spending ahead of the elections in May in addition to the governments undeterred focus to improve capital spending should continue to crowd in private investment and support GDP growth. We believe the economy is in a virtuous cycle, with improving governance bolstering consumer and business sentiment, which reinforces the administrations popularity, helping support its push for further reforms. Inflation and monetary policy: CPI inflation increased to 3.4% y-o-y in February from 3.0% in January, driven by higher food prices that offset lower utilities prices. Core inflation also increased to 3.8% y-o-y from 3.6% in January, consistent with the strength of domestic demand. Headline inflation, however, remains comfortably within the 3-5% target range of Bangko Sentral ng Pilipinas (BSP). On our recent trip to Manila, BSP indicated that it could afford to stay on hold for some time, despite robust growth (Asia Insights: Postcard from the Philippines, 28 February 2013). In the interim, macroprudential tools remain the preferred option for managing strong capital inflows. We maintain our view that headline inflation will average 4.6% y-o-y this year. Our policy rate forecast is 50bp of hikes in H2, but with a rising potential growth rate and BSPs current neutral stance, there are risks that these hikes are delayed. Fiscal policy: The fiscal deficit was 2.3% of GDP in 2012, undershooting the original projection of 2.6%. But the details remain encouraging, as revenue collections are close to target and capital spending has improved. For 2013, the government has proposed a fiscal deficit of 2.0% of GDP that continues to focus on increasing capital outlays, especially infrastructure spending, while higher revenue targets have also been set, which implies improved tax administration. Risks: The main risk to our forecast is an external shock from the still-fragile European and US economies. A slowdown in reforms and infrastructure spending could also hurt growth. We see the election as a political non-event given the current popularity of the government.
Details of the forecast
% y-o-y growth unless otherwise stated Real GDP (sa, % q-o-q, annualized) Real GDP Private consumption Government consumption Gross fixed capital formation Exports (goods & services) Imports (goods & services) Contribution to GDP growth (% points) Domestic final sales Inventories Net trade (goods & services) Exports Imports Merchandise trade balance (USDbn) Current account balance (USDbn) Current account balance (% of GDP) Fiscal balance (% of GDP) Consumer prices (2006=100) Unemployment rate (sa, %) Reverse repo rate (%) Exchange rate (PHP/USD) 3.1 6.9 4.00 42.9 2.9 7.0 4.00 42.1 3.5 6.8 3.75 41.7 3.0 7.0 3.50 41.0 3.5 6.8 3.50 40.2 4.4 6.8 3.50 39.8 4.9 6.5 3.75 39.6 5.4 6.5 4.00 39.2 1Q12 11.2 6.3 5.1 20.9 3.9 10.9 -3.2 6.4 -7.2 7.1 4.8 -1.5 -2.6 1.1 2.0 2Q12 4.4 6.0 5.9 6.8 11.8 8.3 10.3 7.0 -0.2 -0.8 10.5 2.2 -1.4 3.0 4.8 3Q12 5.2 7.2 6.3 12.0 9.0 6.7 4.9 7.4 -1.2 1.0 6.2 0.8 -2.0 3.1 5.1 4Q12 6.6 6.8 6.9 9.1 10.6 9.1 4.6 7.9 -2.3 1.2 9.1 6.4 -3.7 1.1 1.5 1Q13 10.8 6.7 6.7 10.0 10.9 6.8 16.4 8.2 2.8 -4.3 6.8 17.4 -4.5 -0.2 -0.2 2Q13 3.3 6.4 6.8 11.6 10.8 7.0 11.2 8.1 1.2 -2.1 7.0 12.2 -2.3 2.3 3.4 3Q13 3.5 6.0 5.9 7.0 15.5 7.4 16.2 7.9 2.4 -4.3 7.4 17.2 -3.6 1.7 2.4 4Q13 7.8 6.3 5.5 16.3 15.4 5.4 12.0 8.5 1.0 -3.1 5.4 13.0 -5.1 1.9 2.2 2012 6.6 6.1 11.8 8.7 8.7 4.2 7.2 -2.6 2.0 7.6 1.9 -9.7 8.2 3.3 -2.3 3.1 6.9 3.50 41.0 2013 6.4 6.2 11.1 13.2 6.7 13.9 8.2 1.6 -3.4 6.7 15.0 -15.4 5.6 1.9 -2.6 4.6 6.7 4.00 39.2 2014 5.8 5.8 8.0 14.5 9.0 13.0 8.1 0.0 -2.3 9.0 13.0 -19.6 5.7 1.8 -2.2 4.5 6.5 4.50 38.2

Euben Paracuelles
+65 6433 6956 euben.paracuelles@nomura.com

Lavanya Venkateswaran
+91 22 3053 3053 lavanya.venkateswaran@nomura.com

Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.

16

Nomura | Global Economic Outlook Monthly

11 March 2013

Poland | Economic Outlook


NBP's limited cutting cycle is over - growth still outperforming
Although growth will probably be lower this year, we think the economy will bounce back strongly in H2.
Growth: Poland will likely remain the strongest country in the region, growth will still probably be lower in 2013 at 1.9% vs 2.2% last year for several reasons. First, the slowing pace of eurozone structural fund investment will likely combine with domestic fiscal consolidation to drag growth down by some 0.6pp, in our view. Consumption growth should also slow, particularly in H1 thanks to slightly lower credit growth and a stagnant labour market reducing the ability to draw down net savings. However, the sentiment shock in the local economy has had a greater effect on imports and inventories than the export shock. We see meaningful upside risks to growth from the government's off-balance-sheet investment programme, which could add up to 0.5pp to growth for next year and offset part of the structural fund drag in H2 of this year. Equally, traditionally Poland has seen rapid recoveries in inventories and the labour market after external shocks. We expect a bounce-back in 2014 growth to 3% owing to strong fundamentals and the underlying balance sheets of households and corporates, banks that are not feeling the effects of deleveraging, shale gas coming on-stream, and the effects from the investment programme. Currency: We expect a stronger zloty due to the following factors: we believe the economy is in better shape than the market understands, the balance of payments picture is improving significantly, and Poland should remain a bond-flow-magnet due to its fiscal strength. Rates and inflation: We see inflation falling swiftly to below the bottom end of target in the first half of 2013, driven by non-core pressures falling away, and expect gas price cuts to be key. However, over the medium run, as growth is likely to recover from H2 2013, we see inflation rising to settle just below the top of target through much of 2014. After the surprise 50bp cut in the last MPC meeting, our baseline is that rates are now on hold until H1 next year. A fast bounce-back in CPI, however, or a marked move up in growth forecasts could mean an earlier hike; a strong PLN and core CPI still low could mean later in that window. A further external growth shock would mean a last cut was possible however perhaps in May. Overall, the shock at the last meeting was about expectations and communications, not about where rates are now, highlighting communication issues from the MPC again. Fiscal and politics: Prime Minister Tusk has announced ambitious budgetary and structural reforms for the four years of this parliament sufficient to achieve an upgrade later this year, in our view. These reforms should take the deficit below 3.0% of GDP in 2013, though not as targeted in 2012 because of lower growth. Growth matters the most. Aggressive pre-funding, however, means credit risks remain low. We see off-balance sheet investments via BGK as key to supporting growth this year and next, with lower growth increasing government resolve.

Peter Attard Montalto


+44 (0) 20 710 28440 peter.am@nomura.com

Figure 1. Details of the forecast


2011 Real GDP % y-o-y Nominal GDP USD bn Current account % GDP Fiscal balance % GDP CPI % y-o-y * CPI % y-o-y ** Core CPI ex VAT % y-o-y ** Population mn Unemployment rate % Reserves EUR bn ** External debt % GDP Public debt % GDP NBP policy rate %* EURPLN* 4.3 513.6 -4.9 -5.1 4.6 4.3 1.7 38.2 12.5 74.3 62.7 53.5 4.50 4.47 2012 2.2 594.6 -4.7 -3.4 2.4 3.7 1.9 38.5 10.5 82.5 53.2 52.8 4.25 4.08 2013 1.9 588.5 -3.5 -2.9 1.7 1.5 1.7 38.4 12.8 85.0 48.2 52.2 3.25 3.90 2014 3.0 622.0 -4.3 -2.7 3.3 3.0 2.8 38.3 12.2 90.0 45.9 51.6 4.50 3.75

Figure 2. Inflation outlook


% y-o-y 6.0 5.5 Headline Expectations Core

5.0 4.5
4.0 3.5

3.0
2.5 2.0 1.5

1.0 Jan-2008 Jun-2009 Nov-2010 Apr-2012 Sep-2013

Notes: *End of period, **Period average, Bold is actual data. Source: Nomura Global Economics

17

Nomura | Global Economic Outlook Monthly

11 March 2013

Singapore | Economic Outlook


Singapore: A weak start to 2013
Production and export data surprised on the downside in January. The policy focus remains on the restructuring agenda to raise productivity.
Forecast changes: Based on the larger budget surplus in FY12, we revise up our FY13 budget estimate to a surplus of 1.0% of GDP from a deficit of 0.2% of GDP. Activity: Q4 2012 GDP growth was revised up to 1.5% y-o-y from the flash estimate of 1.1%, which takes full-year 2012 growth to 1.3%. Data for January indicate that the economy got off to a weak start in 2013, with industrial production contracting by 0.4% y-o-y in January from growth of 1.3% in December, despite favourable base effects led by electronics and biomedical output. Non-oil domestic exports were also weak in January. Forward looking data remained mixed, as the total manufacturing PMI fell below 50 in February, but the electronics PMI rose above 50. For 2013, we have a subdued GDP growth forecast of 2.4%, as the government focuses more on long-term restructuring to boost competitiveness than short-term counter-cyclical policies. Inflation and monetary policy: CPI inflation eased to 3.6% y-o-y in January from 4.3% in December, due to favourable base effects. Underlying inflation, which excludes accommodation and private road transportation costs, also eased sharply to 1.2% y-o-y in January from 1.9%. However, the easing in January will likely prove temporary given still-elevated transportation and housing costs, rising wages and tight labour markets. We continue to forecast headline inflation to average 3.9% y-o-y in 2013. Underlying inflation, according to the Monetary Authority of Singapore (MAS) should also remain sticky at 1-3%. As such, we remain comfortable with our view that the MAS will not alter its policy of a modest and gradual appreciation of the S$NEER policy band at the next announcement in April. Fiscal policy: The FY13 budget announced on 25 February continued to highlight the governments commitment to raising productivity and restructuring the economy. The measures announced include further restrictions on foreign workers, cash programs for industries to share the burden of rising wages and additional help for the elderly. This fiscal balance is expected to be in a smaller surplus of 0.7% of GDP in FY13 from an upwardly revised surplus of 1.1% in FY12. Based on this, we now expect a higher surplus of 1.0% of GDP given historical revenue outperformance. However, we still expect limited counter-cyclical support to growth. Risks: With exports at 200% GDP, Singapore is the most vulnerable economy in Southeast Asia to a major contraction in global GDP. Another risk is domestic overheating, fuelled by low interest rates and capital inflows.
Details of the forecast
% y-o-y growth unless otherwise stated Real GDP (sa, % q-o-q, annualized) Real GDP Private consumption Government consumption Gross fixed capital formation Exports (goods & services) Imports (goods & services) Contributions to GDP (% points) Domestic final sales Inventories Net trade (goods & services) Unemployment rate (sa, %) Consumer prices Exports Imports Merchandise trade balance (US$bn) Current account balance (% of GDP) Fiscal Balance (% of GDP) 3 month SIBOR (%) Exchange rate (SGD/USD) 1Q12 1.3 2.2 -3.6 6.6 0.3 3.2 2.0 4.9 -5.6 2.0 4.6 0.1 3.5 31.5 18.9 1.1 0.38 1.22 1.3 2Q12 2.4 3.7 0.6 3.3 2.9 3.0 2.2 -0.4 0.6 2.2 3.9 7.6 6.3 38.7 16.1 1.0 0.48 1.19 2.4 3Q12 4.2 3.5 4.0 5.7 10.1 11.1 3.1 0.8 0.8 2.4 3.6 12.1 13.1 40.2 17.0 0.4 0.50 1.17 4.2 4Q12 1.3 2.2 -3.6 6.6 0.3 3.2 2.0 4.9 -5.6 2.0 4.6 0.1 3.5 31.5 18.9 1.1 0.38 1.22 1.3 1Q13 12.0 2.5 3.7 -0.9 4.1 -1.4 -0.2 2.2 3.1 -2.9 2.2 4.2 2.6 3.2 6.8 15.3 0.38 1.21 2Q13 -1.2 2.2 3.9 -0.3 2.9 0.9 1.5 2.1 1.1 -1.0 2.2 4.1 7.9 5.9 9.2 12.0 0.48 1.20 3Q13 -4.2 2.3 4.0 1.1 3.2 5.4 4.8 2.3 -2.9 2.9 2.1 3.8 9.6 7.9 11.1 18.5 0.48 1.20 4Q13 4.7 2.7 3.1 2.7 2.8 6.7 5.8 2.1 -2.9 3.4 2.1 3.4 10.3 8.2 11.7 18.5 0.48 1.19 2012 1.3 2.2 -3.6 6.6 0.3 3.2 2.0 4.9 -5.6 2.0 4.6 0.1 3.5 31.5 18.9 1.1 0.38 1.22 2013 2.4 3.7 0.6 3.3 2.9 3.0 2.2 -0.4 0.6 2.2 3.9 7.6 6.3 38.7 16.1 1.0 0.48 1.19 2014 4.2 3.5 4.0 5.7 10.1 11.1 3.1 0.8 0.8 2.4 3.6 12.1 13.1 40.2 17.0 0.4 0.50 1.17

Euben Paracuelles
+65 6433 6956 euben.paracuelles@nomura.com

Lavanya Venkateswaran
+91 22 3053 3053 lavanya.venkateswaran@nomura.com

Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.

18

Nomura | Global Economic Outlook Monthly

11 March 2013

South Africa | Economic Outlook


Status quo means the brakes are still applied
Despite President Zuma's re-election, we expect further downgrades, heightened fiscal risks and a lack of real reform.
Growth: We see a very sluggish recovery in growth from 2.6% for 2012 to only 2.8% in 2013, and then not even reaching potential growth in 2014, with only 3.2%. Negative pressures are strong from Q3 2012 through the middle of 2013 owing to production lost in the mining sector and second-round effects in up- and downstream industries and consumption. We believe broader underlying consumption can be maintained to some extent because of credit growth and large real wage increases. However, the negative drag from a widening trade deficit will likely offset this. Risks are slightly to the upside if there is a softer landing in the eurozone. Fiscal policy should be broadly neutral, while public sector investments ability to add much to growth beyond what it is already doing is limited by funding constraints. Currency, inflation and rates: With the current account deficit set to remain over 6% of GDP until mid-2013 the currency should remain weak overall and above 9.0 in USDZAR. At the same time, funding remains okay despite the global backdrop, but not great because of domestic risk factors. The SARB has also been surprisingly open about the fact it sees fair value around 8.508.75 (something we think it would have disliked doing in the past) and that it will not intervene on politically-led risk premia shocks. This strengthens our view that the currency will remain weak. The underlying inflation dynamic is looking moderately bullish for this year once currency pass-through and sizeable real wage increase effects pass. We think inflation could breach target briefly mid-year before returning and staying in target until the end of the forecast horizon. We see rates on hold for the next 14 months, but still think the MPC would take the opportunity to cut if it could, it is just that there are currently too many barriers bar a growth shock. Politics and fiscal: There is currently a breakdown in the traditional societal structures surrounding labour, and strikes have occurred because of the links between union leadership, the ANC and BEE funds. We see this re-emerging in the next wage round, which starts more widely in the economy around Easter. We see the outcome of Manguang as a still ineffective and deleterious policy in which potential growth is held back by state intervention something to be increased in the mining sector now. Although the ANC has backed the National Development Plan, we remain sceptical that new ANC Deputy President Ramaphosa can make a meaningful difference in implementation in the short to medium run. Overall, the 2013 budget is mainly a holding one. Significant holes on both the revenue policy side and expenditure policy side exist that will only be filled later in the year as a result of the National Treasurys long-run and ever-delayed expenditure study and the tax commission. This is where we think the true risks to the ratings, debt levels and issuance lie.

Peter Attard Montalto


+44 (0) 20 710 28440 peter.am@nomura.com

Figure 1. Details of the forecast


2011 Real GDP % y-o-y Current account % GDP PSCE % y-o-y* Fiscal balance % GDP FX reserves, gross USD bn* CPI % y-o-y * CPI % y-o-y ** Manufacturing output % y-o-y Retail sales output % y-o-y SARB policy rate %* EURZAR* USDZAR* 3.5 -3.8 6.2 -4.4 48.9 6.1 5.0 2.4 5.7 5.50 10.5 8.09 2012 2.6 -6.0 9.7 -5.0 50.7 5.7 5.7 2.1 2.3 5.00 11.2 8.47 2013 2.8 -6.0 9.6 -4.9 50.5 5.2 5.6 1.8 2.6 5.00 10.5 8.50 2014 3.2 -4.7 10.3 -4.6 50.6 5.8 5.5 2.6 4.6 6.00 11.1 9.00

Figure 2. Inflation outlook


% y-o-y 6.6 6.4 6.2 6.0

5.8
5.6 5.4 5.2

5.0 4.8 Jan-12


Jul-12

Headline - old Headline - new Jan-13 Jul-13 Jan-14 Jul-14

Notes: PSCE Private sector credit extensions. * End of period. ** Period average. Bold is actual data. Source: Nomura Global Economics

Source: Nomura Global Economics

19

Nomura | Global Economic Outlook Monthly

11 March 2013

South Korea | Economic Outlook


South Korea: Growth momentum set to carry into Q1
We expect the Bank of Korea to keep rates unchanged at 2.75% through 2013 as GDP growth and CPI inflation should rise modestly from a low base.
Activity: January-February export data suggest that GDP growth is improving slightly. We expect GDP growth to rise to 0.7% q-o-q in Q1 (from 0.4% in Q4), supported by inventory restocking, fiscal front-loading and a modest foreign demand recovery. We view the strengthening of KRW against JPY as a process of normalization, reflecting improvements in global demand. The new government will likely increase social welfare spending, implement some measures to boost the housing market and frontload 60% of its annual expenditure budget to H1, which should support consumption and construction investment. However, we expect business investment to remain weak as uncertainty surrounding the global outlook remains elevated. Domestic demand should recover only slightly due to structural problems, including a household debt overhang. We maintain our below-consensus forecast for GDP growth of 2.5% in 2013. Inflation: A negative output gap and stable KRW should exert downward pressure on inflation, but higher food prices, rising housing rent and public service fare hikes should push CPI inflation up to 2.7% in 2013 from 2.2% in 2012, although it should remain below the midpoint of the Bank of Koreas (BOK) new inflation target range of 2.5-3.5% for 2013-15. Policy: We expect targeted micro stimulus measures on specific areas (e.g., property market) rather than a broad-based easing of macro policy. We expect the BOK to keep rates at 2.75% through 2013, as growth and inflation should increase modestly from a low base. Risks: As a small, open economy, Korea is vulnerable to sudden changes in global economic conditions, commodity prices and financial markets. That said, we would expect the BOK to cut rates if one of the major downside risks to global growth (the US fiscal cliff; a renewed eurozone sovereign crisis; a China hard landing) materialises, but none of these are part of our base case. Domestically, the new government could formulate a supplementary budget in H1 2013 of as much as KRW20trn (USD20bn or 1.5% of GDP), which provides an upside risk to our domestic demand forecast.
Details of the forecast
% y-o-y growth unless otherwise stated Real GDP (sa, % q-o-q, annualized) Real GDP (sa, % q-o-q) Real GDP Private consumption Government consumption Business investment Construction investment Exports (goods & services) Imports (goods & services) Contributions to GDP growth (% points) Domestic final sales Inventories Net trade (goods & services) Unemployment rate (sa, %) Consumer prices Current account balance (% of GDP) Fiscal balance (% of GDP) Fiscal balance ex-social security (% of GDP) BOK official base rate (%) 3-year T-bond yield (%) 5-year T-bond yield (%) Exchange rate (KRW/USD) 1Q12 2Q12 3.5 1.1 0.9 0.3 2.8 2.3 1.6 1.1 4.4 3.6 9.1 -3.5 2.1 -2.1 5.0 3.2 4.6 0.5 2.8 -0.1 0.1 3.4 3.0 0.8 0.1 1.4 3.3 2.4 3Q12 0.2 0.1 1.5 1.6 3.1 -6.5 -0.2 2.9 1.1 0.6 -0.2 1.0 3.1 1.6 4Q12 1.5 0.4 1.5 2.8 3.1 -5.1 -4.1 4.0 3.1 0.9 -0.1 0.8 3.0 1.7 1Q13 2.8 0.7 1.4 2.4 0.7 -13.1 -0.7 0.5 -1.6 0.8 -0.4 1.0 3.2 1.9 2Q13 3.6 0.9 2.0 2.6 2.0 -5.6 0.7 1.6 0.8 1.9 -0.3 0.5 3.2 2.6 3Q13 3.2 0.8 2.8 2.3 2.3 1.2 1.6 -0.2 -0.1 2.2 0.6 -0.1 3.2 3.1 4Q13 3.6 0.9 3.3 2.1 4.1 5.1 4.1 2.5 2.5 3.4 -0.3 0.3 3.2 3.0 2012 2013 2014

Young Sun Kwon


+852 2252 1370 youngsun.kwon@nomura.com

2.0 1.8 3.6 -1.8 -1.5 3.7 2.3 1.2 -0.1 0.9 3.2 2.2 3.8 1.3 -1.2 2.75 2.82 2.97 1071

2.5 2.3 2.3 -3.4 1.8 1.1 0.4 2.0 0.1 0.4 3.2 2.7 2.8 1.0 -1.3 2.75 2.90 3.00 1030

3.5 2.3 4.1 7.7 4.1 4.8 5.2 3.0 0.2 0.3 3.2 3.0 2.2 1.0 -1.0 3.25 3.30 3.40 1030

3.25 3.55 3.69 1133

3.25 3.30 3.42 1154

3.00 2.83 2.93 1118

2.75 2.82 2.97 1071

2.75 2.75 2.80 1065

2.75 2.80 2.85 1040

2.75 2.85 2.90 1035

2.75 2.90 3.00 1030

Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data as of 7 March 2013. Source: Bank of Korea, CEIC and Nomura Global Economics.

20

Nomura | Global Economic Outlook Monthly

11 March 2013

Taiwan | Economic Outlook


Taiwan: External demand is key
The economy should benefit from the up-cycle in global electronics demand and China GDP, as well as improved cross-strait relations.
Activity and inflation: Real GDP gained strongly in Q4 2012, supported by a rebound in fixed capital formation and exports. Private consumption also showed modest gains, while government expenditure fell. Taiwans growth is largely dependent on global demand, especially from China, its largest export destination accounting for 27% of total exports in 2012. We expect stronger demand from China and a gradual recovery in global electronics demand to help lift GDP growth from 1.3% in 2012 to 3.0% in 2013. The government recently upgraded its 2013 GDP growth forecast from 3.15% to 3.53%, citing the benefits of demand for mobile devices and electronics products. We expect CPI inflation to rise to 2.3% in 2013 from 1.9% in 2012 due to higher food prices and diminished spare capacity. However, given that electricity tariff hikes will be implemented in multiple stages, inflation is unlikely to become a serious factor for growth through our forecast horizon. Cross-strait relations: A faster-than-expected liberalisation of trade and investment with China would add upside risks to our growth forecasts. The latest developments in this area include Taiwanese government plans to double the current limit on mainland Chinese institutions securities investments in its market, while Taiwanese banks have (as of this month) started to accept renminbi deposits. Monetary policy: We expect the Central Bank of China (CBC) to hike the discount rate from 1.875% to 2.125% in H2 2013 as GDP growth and CPI inflation rise. We view this as a normalisation of very loose monetary policy rather than a move to outright tightening. Risks: Another deep recession in advanced economies would have a large impact on Taiwans open economy. Positive risks include a stronger-than-expected recovery in the global electronics cycle and a faster-than-expected liberalisation of trade and investment with China.

Young Sun Kwon


+852 2536 7430 youngsun.kwon@nomura.com

Aman Mohunta
+91 22 6617 5595 aman.mohunta@nomura.com

Details of the forecast


% y-o-y growth unless otherwise stated Real GDP (sa, % q-o-q, annualized) Real GDP Private consumption Government consumption Gross fixed capital formation Exports (goods & services) Imports (goods & services) Contributions to GDP growth (% points) Domestic final sales Inventories Net trade (goods & services) Exports Imports Merchandise trade balance (US$bn) Current account balance (% of GDP) Fiscal balance (% of GDP) Consumer prices Unemployment rate (%) Discount rate (%) Overnight call rate (%) 10-year T-bond (%) Exchange rate (NTD/USD) 1Q12 5.0 0.6 1.9 2.1 -10.2 -3.4 -7.2 -2.6 1.5 1.7 -4.0 -5.9 5.7 9.6 1.3 4.1 1.88 0.42 1.28 29.5 2Q12 -0.1 -0.1 1.6 2.5 -7.7 -2.5 -4.1 -1.1 0.5 0.5 -0.5 0.3 5.6 9.6 1.6 4.2 1.88 0.51 1.23 29.9 3Q12 3.9 0.7 0.9 -0.7 -0.9 2.3 1.9 -0.4 0.5 0.6 4.3 6.3 8.4 9.9 2.9 4.3 1.88 0.38 1.19 29.3 4Q12 7.3 3.7 1.6 -1.7 1.3 4.0 2.2 2.2 -0.3 1.8 6.0 6.6 10.8 12.7 1.8 4.3 1.88 0.41 1.17 29.1 1Q13 1.3 3.1 1.9 3.0 7.0 2.8 2.2 2.1 0.2 0.8 5.3 3.7 7.0 6.9 2.1 4.3 1.88 0.39 1.15 28.9 2Q13 0.5 3.2 2.6 3.5 5.0 3.4 2.2 1.9 0.0 1.3 5.9 3.7 7.4 7.4 2.2 4.2 1.88 0.41 1.20 28.7 3Q13 4.6 3.4 2.8 3.0 4.0 3.6 2.3 2.4 -0.4 1.4 6.1 3.8 10.5 9.2 2.5 4.2 2.00 0.45 1.28 28.7 4Q13 3.6 2.5 2.4 2.6 3.5 2.2 2.4 1.9 0.3 0.4 4.7 3.9 11.8 10.0 2.5 4.2 2.13 0.50 1.30 28.7 2012 1.3 1.5 0.4 -4.4 0.1 -1.9 1.2 0.0 1.1 -2.3 -3.8 30.4 10.5 -1.8 1.9 4.3 1.88 0.41 1.17 29.1 2013 3.0 2.4 3.0 4.8 3.0 2.3 3.7 -0.3 1.0 5.5 3.8 36.7 8.4 -1.9 2.3 4.2 2.13 0.50 1.30 28.7 2014 3.5 3.2 3.2 4.2 3.3 3.5 3.0 0.2 0.5 6.3 5.0 42.6 7.9 -2.0 2.3 4.2 2.13 0.50 1.35 28.2

Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.

21

Nomura | Global Economic Outlook Monthly

11 March 2013

Thailand | Economic Outlook


Thailand: A positive start to 2013
Growth momentum remained strong in January and credit growth is on the rise, which supports our forecast for the BOT to stay on hold despite political pressure to cut.
Activity: Although most economic indicators slowed on a year-on-year basis in January given less favourable base effects, they remained strong seasonally adjusted month-on-month. Business and consumer sentiment indices continued to suggest strong economic momentum, while industrial production also picked up in January. In addition, exports rose in January, but the trade deficit increased substantially on strong import growth. We do not see this is as a cause for concern, however, since imports were partly driven by the volatile gold imports. We therefore see upside risks to our 2013 GDP growth forecast of 4.5%. Monetary policy and inflation: CPI inflation eased further to 3.2% y-o-y in February from 3.4% in January, while core inflation was stable at 1.6% y-o-y, remaining within the Bank of Thailands (BOT) 0.5-3.0% target range. Inflation expectations were also stable at 3.6% in January. However, credit growth (15.0% y-o-y in January from 14.2% in December) and outstanding loans to households (17.4% y-o-y in Q3 2012 or 77.5% of GDP) continued to increase and may be an increasing concern for the BOT. Thus, even though inflation remains low, we continue to expect the BOT to keep the policy rate on hold at 2.75% at the 3 April meeting and for the rest of the year. Fiscal policy: Following the cabinets approval, more details on the governments THB2trn infrastructure investment plan and major transportation projects were released. These projects, combined with the on-going water management projects for which the government is scheduled to borrow THB340bn (3% of GDP) by June 2013, will likely increase public debt to 47-48% of GDP by end-FY13, still well-below the debt ceiling of 60%. On our recent trip to Bangkok, we discovered that the borrowing will be done on an incremental basis, and not all at once, which suggests that the government is focused on maintaining financial flexibility and sustainability of its debt (see Asia Insights: Postcard from Thailand, 1 March 2013). Risks: The downside risks to our forecasts stem from a deepening of the euro area recession and domestically, from increased political uncertainty over the constitutional amendment and reconciliation bill. Slow progress on infrastructure plans could weaken investment sentiment.
Details of the forecast
% y-o-y growth unless otherwise stated Real GDP (sa, % q-o-q, annualized) Real GDP Private consumption Public consumption Gross fixed capital formation Exports (goods & services) Imports (goods & services) Contribution to GDP growth (% points) Domestic final sales Inventories Net trade (goods & services) Exports Imports Merchandise trade balance (US$bn) Current account balance (US$bn) Current account balance (% of GDP) Fiscal balance (% of GDP, fiscal year basis) Consumer prices Unemployment rate (sa, %) Overnight repo rate (%) Exchange rate (THB/USD) 1Q12 48.0 0.4 2.9 -0.2 5.2 -3.2 4.3 2.5 2.9 -4.7 -1.4 10.4 -5.2 1.4 1.6 3.4 0.7 3.00 30.8 2Q12 13.0 4.4 5.3 7.4 10.2 1.1 8.6 5.9 2.8 -4.2 2.0 9.2 -5.0 -2.3 -2.6 2.5 0.9 3.00 31.8 3Q12 6.1 3.1 6.0 10.0 15.5 -2.8 -1.8 7.7 -3.7 -1.1 -3.8 -1.7 -1.6 2.7 3.1 2.9 0.6 3.00 30.8 4Q12 15.0 18.9 12.2 12.1 23.5 19.0 14.7 12.7 1.4 4.9 21.1 18.5 -6.1 0.9 1.0 3.2 0.5 2.75 30.6 1Q13 -14.5 4.2 7.4 4.5 9.5 6.1 4.2 6.1 -2.7 2.0 3.8 3.5 -5.2 -0.1 -0.1 3.3 0.9 2.75 29.5 2Q13 13.9 4.4 6.7 -0.1 8.7 3.2 2.1 5.7 -2.7 1.1 3.0 5.6 -6.7 -3.4 -3.3 3.4 0.8 2.75 29.3 3Q13 7.6 4.8 3.5 -3.1 3.7 5.7 6.6 2.4 1.2 0.2 6.4 14.7 -6.8 -1.9 -1.8 3.1 0.6 2.75 29.2 4Q13 15.4 4.8 1.7 0.2 12.0 1.6 0.3 3.5 1.6 0.8 2.3 2.7 -4.2 3.6 3.3 3.0 0.6 2.75 29.1 2012 2013 2014

Euben Paracuelles
+65 6433 6956 euben.paracuelles@nomura.com

Nuchjarin Panarode, CNS Thailand


+662 638 5791 nuchjarin.panarode@nomura.com

6.4 6.6 7.4 13.3 2.9 6.1 7.0 0.8 -1.4 3.1 8.2 -18.1 2.7 0.7 -2.6 3.0 0.7 2.75 30.6

4.5 4.8 0.1 8.4 4.1 3.4 4.4 -0.6 1.0 5.0 6.6 -23.0 -1.8 -0.4 -3.2 3.2 0.7 2.75 29.1

5.0 3.8 -0.7 10.8 5.0 5.0 4.5 -0.1 0.7 6.9 7.2 -25.4 -1.9 -0.4 -3.7 3.1 0.7 3.25 28.6

Notes: Numbers in bold are actual values; others forecast. Interest rate and currency forecasts are end of period; other measures are period average. All forecasts are modal forecasts (i.e., the single most likely outcome). Table reflects data available as of 7 March 2013. Source: CEIC and Nomura Global Economics.

22

Nomura | Global Economic Outlook Monthly

11 March 2013

Turkey | Economic Outlook


A healthy rebalancing
Tightening policy has helped to rebalance the economy. We expect the rebalancing to lose its 2012 momentum, but the economy looks very healthy for 2013.
Activity: GDP growth looks likely to accelerate to 4.5% in 2013 after 3% growth in 2012. The risks are now balanced, in our view. The recovery is a very healthy one, with no signs of overheating, especially compared with the 2010 recovery. Private investment should remain strong, while private consumption recovers. We do not expect net exports to flip into negative territory similar to the previous episodes of global recovery. Inflation: Turkeys inflation deteriorated at the expense of a strong fiscal stance in 2012. So far it has been largely driven by factors beyond the TCMBs control, but it looks like the markets working number for the next six months is now around 7.5% with some upside risks. An improvement in the growth backdrop could lead to a deterioration in inflation expectations. Policy: The TCMB cut policy rates by 25bp to 5.5% in December. Despite the relatively high inflation recently, we do not expect a big reaction from the TCMB for several reasons. First, the high CPI print was largely driven by one-off factors. Furthermore, we are less comfortable with the core outlook and finally, Turkey has seen a recent growth pick-up (with loan growth, for example), but not at an overheating stage. Fiscal policy: Since H2 2011 fiscal policy has helped the monetary authorities, as the government has used revenue outperformance as a cushion. The recently unveiled Medium Term Programme (MTP) for 2013-15 suggests that the tight fiscal stance will continue and it looks like the government intends to avoid running an election budget or any form of election spending. While primary surplus estimates are not as ambitious as in the past six or seven years, we still expect the debt-to-GDP ratio to fall towards the low-30% levels. Rating outlook: Turkey is now rated investment grade by Fitch, and we expect it to receive an investment grade rating this year from the other ratings agencies as well. We think rebalancing and structural reforms are moving in the right direction. Risks: Terms-of-trade shocks (higher oil prices) and sudden stops of capital inflows are the main risks. In that scenario, inflation could rise again with unwarranted currency weakness resulting in a sharp fall in consumer confidence. However, this is not our base case. We think the risks of capital controls being implemented, on any rapid appreciation, are extremely low. With EM inflows accelerating, the likelihood of sudden stops has declined. Tight lending conditions are still weighing on credit demand.
Fig. 1: Details of the forecasts
2011 Real GDP % y-o-y Private consumption Private investments Net exports CPI % y-o-y * CPI % y-o-y ** Budget balance % GDP Primary balance % GDP Public debt % GDP Current account % GDP TCMB policy rate %* USDTRY* 8.5 5.5 4.7 -1.7 10.5 6.5 -1.2 1.6 42.4 -10.0 5.75 1.89 Contributions to GDP by selected items 1.3 -0.5 2.0 6.2 8.9 -2.4 0.6 37.0 -7.0 5.50 1.78 2.5 2.1 1.0 6.5 6.7 -2.3 1.0 36.0 -6.0 5.50 1.70 2.4 2.1 0.2 5.0 6.3 -2.0 1.2 35.0 -6.0 5.50 1.75 2012 3.0 2013 4.5 2014 5.5

Olgay Buyukkayali
+44 (0) 20 710 23242 olgay.buyukkayali@nomura.com

Fig. 2: Fiscal policy very tight


50 Gross debt (%GDP)
2009 45

2010 2011 2012


2013 35

40

Cyc. adj. primary balance (% GDP) 1.2 1.3 1.4 1.5 1.6 1.7 1.8

1.1

Source: Nomura Global Economics, IMF.

Notes:* End of period. ** Period average. Bold is actual data. Source: Nomura Global Economics

23

Nomura | Global Economic Outlook Monthly

11 March 2013

United Kingdom | Economic Outlook


Stagnant
Intensification of the euro area crisis remains a serious threat to the UK. The MPCs policy response is consistently aggressive, despite inflations persistent stickiness.
Activity: Underlying growth ground to a halt in 2011 and has bumped around broadly the same level of activity ever since. Renewed signs of cyclical growth momentum do not look any different to us than in the previous two mini-cycles. With fundamentals still bleak, we expect momentum to wane at still weak growth rates within the next few months (see UK Comment: The latest mini-cycle's mini-surge). Growth remains constrained by the ongoing domestic deleveraging and the challenging rebalancing act within the euro area. Moreover, the needed rebalancing is only being delayed by policy stimulus, which is shifting the pain from employment onto persistently poor productivity (see UK Theme: the moribund metastable equilibrium). Inflation: Inflation has been boosted by a series of one-off shocks such as changes to VAT and energy prices, but underlying inflation is still probably too strong. And there are further one offs from tuition fees. We maintain our long-held view that there will not be a sustained fall below the inflation target (see UK Theme: Inflation in a black hole). Weak productivity is pushing up costs and the global environment is no longer disinflationary. Policy: The MPC is responding aggressively to signs of weaker global growth and subdued domestic demand. QE3 was brought to an end in November after buying 50bn, because the MPC wanted to see if signs of recovery are sustained. Concerns about QEs effectiveness do not prohibit its relaunch, but we still believe cutting rates would be counterproductive and other schemes fail to address the true problem (see UK Theme: FLS fails to firefight monetary arson). Part of demand's ongoing weakness is attributable to the economy's unavoidable but impeded rebalancing and associated fiscal consolidation programme. We estimate fiscal policy will keep subtracting about 1.0% from GDP growth. However, in order to balance the mandated current structural balance within a reasonable horizon, we think the government will need to implement more measures. That is because its current spending plans are conditioned on what we have long considered to be an overly optimistic view of potential growth and thus revenues (see, for example, UK Theme: Policymakers remake mistakes, 24 November 2011). As policy is not responding to slippage, the debt-to-GDP (secondary) target has been broken and we expect other ratings agencies to downgrade the UK (see UK Theme: Bending the fiscal rules). Risks: Downside risks dominate our growth forecasts, creating the risk that the MPC delivers even more easing, despite the risks being to the upside of our inflation forecasts.

Philip Rush
+44 20 7102 9595 philip.rush@nomura.com

Details of the forecast


1Q12 Real GDP Private consumption Government consumption Fixed investment Exports of goods and services Imports of goods and services Contributions to GDP: Domestic final sales Net trade Inventories Unemployment rate Consumer prices (CPI) Retail prices (RPI) Announced size of the APF (bn) Official Bank rate 3-month sterling libor 10-year gilt per euro $ per -0.2 0.5 3.2 0.6 -1.7 -0.1 1.1 -0.5 -0.9 8.2 3.5 3.8 325 0.50 1.03 2.20 0.83 1.60 2Q12 -0.4 0.4 -1.1 -0.5 -1.1 1.7 -0.1 -0.9 0.6 8.0 2.8 3.1 325 0.50 0.90 1.73 0.81 1.56 3Q12 0.9 0.3 0.8 -0.2 1.2 -0.4 0.3 0.5 0.1 7.8 2.4 2.9 375 0.50 0.60 1.73 0.80 1.62 4Q12 -0.3 0.1 0.6 -0.4 -1.5 -1.2 0.2 -0.1 -0.4 7.8 2.7 3.1 375 0.50 0.52 1.83 0.81 1.61 1Q13 0.0 0.2 -0.3 -0.1 1.1 1.1 0.1 0.0 0.0 7.7 2.7 3.3 375 0.50 0.51 2.00 0.82 1.59 2Q13 0.0 0.3 -0.3 0.3 0.9 1.3 0.2 -0.2 0.0 7.6 3.0 3.7 375 0.50 0.51 2.05 0.81 1.58 3Q13 0.0 0.3 -0.3 0.3 0.9 1.2 0.1 -0.1 -0.1 7.6 2.9 3.7 375 0.50 0.51 2.20 0.80 1.56 4Q13 0.1 0.2 -0.4 0.4 1.0 0.9 0.1 0.0 0.0 7.5 2.6 3.4 375 0.50 0.51 2.20 0.78 1.58 2012 0.0 1.0 3.0 -0.3 -0.6 1.8 1.3 -0.8 -0.5 7.9 2.8 3.2 375 0.50 0.52 1.83 0.81 1.61 2013 0.2 1.0 -0.2 -0.1 1.7 2.2 0.6 -0.2 -0.2 7.6 2.8 3.5 375 0.50 0.51 2.20 0.78 1.58 2014 0.7 1.1 -1.5 2.5 3.5 3.1 0.7 0.1 -0.1 7.2 2.5 3.2 375 0.50 0.60 3.35 tbc tbc

Notes: Quarterly figures are % q-o-q changes. Annual figures are % y-o-y changes. Inventories include statistical discrepancy. Inflation is % y-o-y. Interest rates and currencies are end-of-period levels. Numbers in bold are actual values; others forecast. Table reflects data available as of 11 January 2013. Source: ONS, Bank of England, Bloomberg, DataStream, Nomura Global Economics.

24

Nomura | Global Economic Outlook Monthly

11 March 2013

United States | Economic Outlook


Lost in translation
Labor market indicators are unlikely to sway the FOMC from its commitment to provide extraordinarily easy policy even after the recovery strengthens.
Activity: In the 3 1/2 years since the Great Recession ended, real GDP has grown at a lackluster 2.1% pace and is tracking close to that pace in Q1 2013. Lower-income households are in the process of ratcheting down spending in response to a higher tax burden, but aggregate demand is being held up by higher-income spenders reacting to rising wealth from equities and real estate. Fiscal policy remains a source of uncertainty for the outlook, but risks of a policy misstep have diminished. Our forecast for the US economy assumes that half of the 1 March spending cuts will be implemented this year, but it is looking more likely that the full sequester will remain in place. If so, our assumptions for government spending will need to be revisited. Congress is working to complete a continuing resolution (CR) before the 22 March Easter holiday break. The CR is expected to fund the federal government through the end of this fiscal year (30 September). Providing a buffer against fiscal headwinds, the housing recovery continues to deepen. Home price increases are providing support for household confidence and we expect the wealth effect from real estate to help support aggregate demand. Inflation: Our forecast for consumer price inflation to remain below 2% for the forecast horizon reflects the effects of a substantial output gap that has emerged from three years of sub-par growth in the economy, and limited risks from commodity prices. Policy: We expect the FOMC to maintain its current longer-term asset purchase program through Q3 2013, and then begin to taper purchases as the recovery strengthens and outlook improves convincingly. Upcoming negotiations in Washington over the reprogramming of spending cuts and the budget are likely to prove very contentious. Risks: Fiscal policy missteps and slower global growth remain the dominant risks to the outlook.
Details of the forecast
% Real GDP Personal consumption Non residential fixed invest Residential fixed invest Government expenditure Exports Imports Contributions to GDP: Domestic final sales Inventories Net trade Unemployment rate Nonfarm payrolls, 000 Housing starts, 000 saar Consumer prices Core CPI Federal budget (% GDP) Current account balance (% GDP) Fed securities portfolio ($trn) Fed funds target 3-month LIBOR TSY 2-year note TSY 5-year note TSY 10-year note* 30-year mortgage 1Q12 2.0 2.4 7.5 20.6 -3.0 4.4 3.1 2.3 -0.4 0.1 8.3 262 715 2.8 2.2 2Q12 1.3 1.5 3.6 8.4 -0.7 5.2 2.8 1.5 -0.5 0.2 8.2 108 736 1.9 2.3 3Q12 3.1 1.6 -1.8 13.6 3.9 1.9 -0.6 2.0 0.7 0.4 8.0 152 774 1.7 2.0 4Q12 0.1 2.1 9.7 17.4 -6.9 -3.9 -4.5 1.4 -1.6 0.2 7.8 201 901 1.9 1.9 1Q13 1.8 1.4 0.1 18.0 -0.6 5.4 5.0 1.3 0.6 -0.1 7.8 175 950 1.7 1.9 2Q13 2.2 1.6 2.1 17.0 -0.6 2.3 2.4 1.6 0.6 -0.1 7.7 150 1005 1.9 1.7 3Q13 2.9 2.7 5.2 15.7 -1.0 3.7 2.8 2.7 0.2 0.0 7.6 175 1050 1.8 1.8 4Q13 3.1 2.8 5.5 18.5 -0.9 5.6 3.7 2.9 0.1 0.1 7.5 175 1080 1.6 1.8 1Q14 3.0 2.9 4.5 13.6 -0.5 5.9 4.1 2.8 0.1 0.1 7.4 175 1130 1.7 1.7 2Q14 3.3 2.8 6.9 14.3 -0.2 4.4 2.9 3.1 0.2 0.1 7.2 180 1170 1.6 1.7 3Q14 3.4 3.0 5.5 12.7 -0.1 4.4 3.0 3.1 0.2 0.1 7.1 180 1200 1.5 1.8 4Q14 3.5 3.0 5.9 7.5 0.7 4.5 2.3 3.1 0.1 0.2 7.0 200 1250 1.5 1.9 2012 2.2 1.9 7.7 12.1 -1.7 3.3 2.4 2.1 0.1 0.0 8.1 181 781 2.1 2.1 -7.0 -3.0 2013 1.9 1.8 3.2 16.3 -1.3 2.4 1.5 1.8 0.0 0.1 7.7 169 1021 1.7 1.8 -5.6 -2.9 2014 3.1 2.8 5.3 14.5 -0.4 4.8 3.3 3.0 0.1 0.0 7.2 184 1188 1.6 1.8 -4.2 -2.6

Lewis Alexander
+1 212 667 9665 lewis.alexander@nomura.com

Ellen Zentner
+1 212 667 9668 ellen.zentner@nomura.com

Aichi Amemiya
+1 212 667 9347 aichi.amemiya@nomura.com

Joseph Song
+1 212 667 2415 joseph.song@nomura.com

Roiana Reid
+1 212 298 4221 roiana.reid@nomura.com

2.60 2.61 2.57 2.66 2.90 3.17 3.44 3.64 3.71 3.71 3.70 3.70 2.66 3.64 3.70 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0.47 0.46 0.36 0.31 0.35 0.25 0.30 0.35 0.40 0.45 0.50 0.50 0.31 0.35 0.50 0.33 0.33 0.23 0.26 0.20 0.25 0.30 0.35 0.45 0.55 0.60 0.65 0.26 0.35 0.65 1.04 0.72 0.62 0.75 0.70 0.80 0.85 0.95 1.05 1.15 1.20 1.25 0.75 0.95 1.25 2.23 1.67 1.65 1.77 1.85 2.00 2.10 2.25 2.35 2.45 2.50 2.55 1.77 2.25 2.55 3.99 3.66 3.40 3.35 3.40 3.60 3.70 3.90 4.00 4.10 4.15 4.20 3.35 3.90 4.20

* The forecast range for 10y UST is as follows: 1Q13 = 1.80-2.15, 2Q13 = 1.90-2.25 Notes: Quarterly real GDP and its contributions are seasonally adjusted annualized rates. The unemployment rate is a quarterly average as a percentage of the labor force. Nonfarm payrolls are average monthly changes during the period. Inflation measures and calendar year GDP are year-over-year percent changes. Interest rate forecasts and the Fed's securities portfolio are end of period. Housing starts are period averages. Numbers in bold are actual values. Table reflects data available as of 8 March 2013. Source: Nomura

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Rest of EEMEA | Economic Outlook


Czech Republic: Postmodernism here we come
Although a technical recession may linger through to Q2, until sentiment improves domestic demand growth will likely continue to underperform export growth.
2011 Real GDP % y-o-y Nominal GDP USD bn Current account % GDP Fiscal balance % GDP CPI % y-o-y * CPI % y-o-y ** Core CPI ex VAT % y-o-y ** Population mn Unemployment rate % Reserves EUR bn ** External debt % GDP Public debt % GDP CNB policy rate %* EURCZK* 1.7 215.5 -2.9 -4.0 2.4 1.9 0.8 10.5 8.6 31.1 50.8 43.8 0.75 25.59 2012 -1.7 222.6 -2.5 -4.5 2.4 3.3 0.3 10.4 9.4 31.5 49.2 45.2 0.05 25.10 2013 0.0 204.0 -2.8 -4.0 1.7 1.8 0.2 10.4 8.8 32.0 47.8 47.0 0.05 25.50 2014 1.4 205.4 -3.2 -3.8 1.4 1.6 1.0 10.3 8.5 32.5 47.7 46.6 1.00 25.00

Growth should start to recover from Q2, led principally by consumption, because of a still healthy labour market, and then move slowly through to domestic investment. The external shock to the economy has so far been surprisingly muted and so it is the oscillations of imports on net trade that have been the issue. Fiscal drag should still be an issue, shaving some 0.2pp off GDP. Much of the shock, however, is sentiment driven. An increasingly fractious and unstable coalition should make any stronger fiscal action or structural reforms unlikely. However, with steady access to domestic funding and low debt, it is questionable how much additional fiscal consolidation is needed for the medium-run path to remain credible. Overall, we expect a largely lame duck government to keep things ticking over, but its ability to survive through to the 2014 election remains very much in doubt. Underlying CPI inflation should stay soft until mid-H2, when it should start to normalise, though headline CPI inflation should fall back through next year. The risks to growth and CPI inflation in the next six months and as interest rates are in the lower bound means that if a sufficient external shock occurs in the eurozone, there could be CNB intervention. We think there may be brief non-level-targeting intervention in small size in Q2 if EURCZK falls to 25.0.

*End of period, **Period average, Bold is actual data

Source: CSO, CNB, Nomura Global Economics

Romania: Markets should concentrate on fiscal not politics


Twin deficits leave little room for supporting growth in a challenging external demand environment with domestic political and constitutional uncertainties not helping.
2011 Real GDP % y-o-y Current account % GDP Fiscal balance % GDP CPI % y-o-y * CPI % y-o-y ** External debt % GDP Public debt % GDP BNR policy rate %* EURRON* 1.9 -4.4 -5.5 3.1 5.8 72.3 33.4 6.00 4.33 2012 0.3 -3.7 -2.6 5.0 3.3 70.0 39.3 5.25 4.44 2013 0.6 -4.2 -2.1 3.4 3.4 72.0 39.5 5.25 4.60 2014 1.5 -4.5 -1.7 3.2 3.2 71.8 38.2 6.00 4.45

Peter Attard Montalto


+44 (0) 20 710 28440 peter.am@nomura.com

Markets are becoming concerned about the confluence of negative factors in Romania, such as Moodys lowering of the rating outlook to negative, IMF concerns over the elections in December moving Romania off-programme and the fire sales of assets to support increased public sector wages. Romania is vulnerable to deleveraging forces, which could pose a serious risk to the balance of payments. Although the BNR has a contingency plan that may involve capital controls, the precautionary SBA with the IMF may need to be tapped if the situation deteriorates. The high inflation we expected for 2012 did not materialise, so we now see rates unchanged for this year, with risks of cuts and still no hikes until 2014. We are not convinced the new Victor Ponta-led coalition will stick to the IMF-backed austerity programme, which would likely see the party lose the next election.

*End of period; **Period average; Bold is actual data

Source: Ministry of statistics, Nomura Global Economics

Israel: Slower exports, slower growth, but no recession


Looser monetary policy should help Israel to recover.
2011 Real GDP % y-o-y CPI % y-o-y * CPI % y-o-y ** Budget balance % GDP Current account % GDP Policy rate %* USDILS* 4.8 2.2 3.5 -2.7 0.3 2.75 3.81 2012 2.5 1.6 1.7 -3.3 -1.5 1.75 3.73 2013 3.0 2.5 2.6 -3.5 -1.0 1.75 3.60 2014 3.5 2.5 2.7 -3.0 -1.0 2.50 3.70

Olgay Buyukkayali
+44 (0) 20 710 23242 olgay.buyukkayali@nomura.com

*End of period, **Period average, Bold is actual data

Israels export-driven economy has outperformed the region in the post-crisis environment thanks to an aggressive monetary policy response resulting in healthy domestic demand. The economy is currently slowing in line with the global backdrop. Inflationary pressures appear to have subsided and inflation expectations are well anchored. The electricity price hikes, however, may limit the extent of policy easing. With the policy rate at 1.75%, we see no further cuts unless the global economy deteriorates further. Underlying final demand should not weaken greatly and the recovery in 2014 should result in measured rate hikes (75bp to 2.50% by year-end).

Source: BOI, Nomura Global Economics

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Rest of Latin America | Economic Outlook


Argentina: Key mid-term elections coming
Electoral calculations are likely to drive economic policymaking yet again
2011 8.9 10.7 16.6 4.3 17.8 9.5 21.8 0.3 0.0 18.8 4.29 2012 2.0 4.4 -9.0 -6.0 -7.6 10.2 26.4 -0.8 1.8 15.0 4.88 2013 4.0 4.2 7.5 6.7 10.8 10.2 32.3 -2.0 1.9 17.0 6.00 2014 3.5 3.8 5.0 5.0 10.0 10.2 29.7 -1.5 1.0 14.0 7.20

Tony Volpon
+1 212 667 2182 tony.volpon@nomura.com

Real GDP % y-o-y Consumption % y-o-y Gross Investment % y-o-y Exports % y-o-y Imports % y-o-y CPI % y-o-y * CPI % y-o-y ** Budget balance % GDP *** Current account % GDP Policy Rate % USDARS

We expect the authorities to keep financing their growing fiscal deficits with monetary financing from the central bank. This will likely increase inflationary pressures. Despite more supportive trade flows, we do not expect a relaxation of draconian exchange controls. Argentinas economic recovery in 2013, a key electoral year, is likely to be lackluster. As such, the authorities are likely to resort to their usual recipe: Expansionary fiscal and monetary policies. Increasing RER overvaluation to put further strain on output ex commodities and automobile production to Brazil.

* Official data, ** Private estimate, ***Primary budget balance, Bold is actual data

Source: BCRA, Indec, MECON, Nomura

Colombia: Growth around trend


We expect GDP to grow below potential in 2013
2011 2012 5.9 3.8 5.8 4.5 16.6 9.0 11.4 7.0 21.5 9.0 3.7 2.4 3.4 2.8 -2.1 -1.8 -3.0 -3.5 4.75 4.25 1938.50 1767.00 2013 4.2 4.6 4.2 6.5 7.0 2.7 2.6 -2.0 -3.0 3.50 1800.00 2014 4.5 4.5 9.7 9.5 8.5 3.5 3.5 -2.3 -3.0 4.50 1780.00

Benito Berber
+1 212 667 9503 benito.berber@nomura.com

Real GDP % y-o-y Consumption % y-o-y Gross Investment % y-o-y Exports % y-o-y Imports % y-o-y CPI % y-o-y * CPI % y-o-y ** Budget balance % GDP Current account % GDP Policy Rate % * USDCOP *

Q3 2012 growth surprised on the downside (2.1%y-o-y). This disappointing growth reopened a negative output gap. We expect the economy to grow at 4.2% in 2013. Both headline and core inflation are surprising on the downside. Currently both are located at the lower end of the Central Bank target (2.0%). We expect inflation and inflation expectations to remain well anchored below the 3.0% target. We expect an additional 50bp interest rate cut to 3.5% in the first half of 2013 and for authorities to continue intervening in the FX market to curb COP appreciation. The monetary policy outlook for the second half of 2013 will depend on how fast the output gap is closing and on the response of credit and housing prices growth to the previous rates cut.

* End of period, ** Period average, Bold is actual data

Source: CSOP, NBP, Nomura

Chile: Better external conditions bring upward pressure


We expect domestic demand to remain robust and small hike in H2.
2011 6.0 8.8 17.6 4.6 14.4 4.4 3.3 1.5 -1.3 5.25 519.55 2012 5.4 5.8 10.5 3.1 4.6 1.5 3.0 1.0 -3.0 5.00 479.00 2013 5.5 6.0 10.0 5.0 9.0 3.3 3.2 1.0 -3.0 5.25 460.00 2014 5.0 5.5 7.0 5.0 8.0 3.0 3.0 1.0 -2.0 5.25 450.00

George Lei
+1 212 667 9947 george.lei@nomura.com

Real GDP % y-o-y Consumption % y-o-y Gross Investment % y-o-y Exports % y-o-y Imports % y-o-y CPI % y-o-y * CPI % y-o-y ** Budget balance % GDP Current account % GDP Policy Rate % * USDCLP *

Chile has been growing robustly in 2012, with retail and construction sectors propping up internal demand. As external growth gradually improves, we expect the Chilean economy to expand even faster in 2013. Inflation is currently below target (3%) and expectations are well-anchored. Yet upside risks are notable in the mediumterm, given the tight labor market, strong wage hikes and Chiles high exposure to oil price shocks. As global uncertainties clear up, the central bank will increasingly focus on the domestic front to determine the next move, as the monetary policy rate (TPM) is currently around neutrality. We expect a small hiking cycle in H2 2013, taking TPM to 5.25% by year-end. The presidential election on November 17 will be the most important political event next year. Incumbent Piera is constitutionally barred from seeking immediate reelection and no firm candidate has emerged yet.

* End of period, ** Period average, Bold is actual data

Source: Haver, Bloomberg, Nomura

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Disclosure Appendix A-1

ANALYST CERTIFICATIONS
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Nomura Securities International, Inc has received compensation for non-investment banking products or services from the issuer in the past 12 months. Nomura Securities International, Inc had a non-investment banking securities related services client relationship with the issuer during the past 12 months. Nomura Securities International, Inc had a non-securities related services client relationship with the issuer during the past 12 months. The Nomura Group expects to receive or intends to seek compensation for investment banking services from the issuer in the next three months.

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Neith er this

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Nomura | Global Economic Outlook Monthly

11 March 2013

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Disclaimers required in Japan


Investors in the financial products offered by Nomura Securities may incur fees and commissions specific to those products (for example, transactions involving Japanese equities are subject to a sales commission of up to 1.365% (tax included) of the transaction amount or a commission of 2,730 (tax included) for transactions of 200,000 or less, while transactions involving investment trusts are subject to various fees, such as commissions at the time of purchase and asset management fees (trust fees), specific to each investment trust). In addition, all products carry the risk of losses owing to price fluctuations or other factors. Fees and risks vary by product. Please thoroughly read the written materials provided, such as documents delivered before making a contract, listed securities documents, or prospectuses. Transactions involving Japanese equities (including Japanese REITs, Japanese ETFs, and Japanese ETNs) are subject to a sales commission of up to 1.365% (tax included) of the transaction amount (or a commission of 2,730 (tax included) for transactions of 200,000 or less). When Japanese equities are purchased via OTC transactions (including offerings), only the purchase price shall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for OTC transactions, as agreed with the customer. Japanese equities carry the risk of losses owing to price fluctuations. Japanese REITs carry the risk of losses owing to fluctuations in price and/or earnings of underlying real estate. Japanese ETFs carry the risk of losses owing to fluctuations in the underlying indexes or other benchmarks. Transactions involving foreign equities are subject to a domestic sales commission of up to 0.9975% (tax included) of the transaction amount (which equals the local transaction amount plus local fees and taxes in the case of a purchase or the local transaction amount minus local fees and taxes in the case of a sale) (for transaction amounts of 750,000 and below, maximum domestic sales commission is 7,455 tax included). Local fees and taxes in foreign financial instruments markets vary by country/territory. When foreign equities are purchased via OTC transactions (including offerings), only the purchase price shall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for OTC transactions, as agreed with the customer. Foreign equities carry the risk of losses owing to factors such as price fluctuations and foreign exchange rate fluctuations. Margin transactions are subject to a sales commission of up to 1.365% (tax included) of the transaction amount (or a commission of 2,730 (tax included) for transactions of 200,000 or less), as well as management fees and rights handling fees. In addition, long margin transactions are subject to interest on the purchase amount, while short margin transactions are subject to fees for the lending of the shares borrowed. A margin equal to at least 30% of the transaction amount and at least 300,000 is required. With margin transactions, an amount up to roughly 3.3x the margin may be traded. Margin transactions therefore carry the risk of losses in excess of the margin owing to share price fluctuations. For details, please thoroughly read the written materials provided, such as listed securities documents or documents delivered before making a contract. Transactions involving convertible bonds are subject to a sales commission of up to 1.05% (tax included) of the transaction amount (or a commission of 4,200 (tax included) if this would be less than 4,200). When convertible bonds are purchased via OTC transactions (including offerings), only the purchase price shall be paid, with no sales commission charged. However, Nomura Securities may charge a separate fee for OTC transactions, as agreed with the customer. Convertible bonds carry the risk of losses owing to factors such as interest rate fluctuations and price fluctuations in the underlying stock. In addition, convertible bonds denominated in foreign currencies also carry the risk of losses owing to factors such as foreign exchange rate fluctuations. When bonds are purchased via public offerings, secondary distributions, or other OTC transactions with Nomura Securities, only the purchase price shall be paid, with no sales commission charged. Bonds carry the risk of losses, as prices fluctuate in line with changes in market interest rates. Bond prices may also fall below the invested principal as a result of such factors as changes in the management and financial circumstances of the issuer, or changes in third-party valuations of the bond in question. In addition, foreign currency-denominated bonds also carry the risk of losses owing to factors such as foreign exchange rate fluctuations. When Japanese government bonds (JGBs) for individual investors are purchased via public offerings, only the purchase price shall be paid, with no sales commission charged. As a rule, JGBs for individual investors may not be sold in the first 12 months after issuance. When JGBs for individual investors are sold before maturity, an amount calculated via the following formula will be subtracted from the par value of the bond plus accrued interest: (1) for 10-year variable rate bonds, an amount equal to the two preceding coupon payments (before tax) x 0.79685 will be used, (2) for 5-year and 3-year fixed rate bonds, an amount equal to the two preceding coupon payments (before tax) x 0.79685 will be used. Purchases of investment trusts (and sales of some investment trusts) are subject to a purchase or sales fee of up to 5.25% (tax included) of the transaction amount. Also, a direct cost that may be incurred when selling investment trusts is a fee of up to 2.0% of the unit price at the time of redemption. Indirect costs that may be incurred during the course of holding investment trusts include, for domestic investment trusts, an asset management fee (trust fee) of up to 5.25% (tax included, annualized basis) of the net assets in trust, as well as fees based on investment performance. Other indirect costs may also be incurred. For foreign investment trusts, indirect fees may be incurred during the course of holding such as investment company compensation. Investment trusts invest mainly in securities such as Japanese and foreign equities and bonds, whose prices fluctuate. Investment trust unit prices fluctuate owing to price fluctuations in the underlying assets and to foreign exchange rate fluctuations. As such, investment trusts carry the risk of losses. Fees and risks vary by investment trust. Maximum applicable fees are subject to change; please thoroughly read the written materials provided, such as prospectuses or documents delivered before making a contract. No account fee will be charged for marketable securities or monies deposited. Transfers of equities to another securities company via the Japan Securities Depository Center are subject to a transfer fee of up to 10,500 (tax included) per issue transferred depending on volume.

Nomura Securities Co., Ltd.


Financial instruments firm registered with the Kanto Local Finance Bureau (registration No. 142) Member associations: Japan Securities Dealers Association; Japan Investment Advisers Association; The Financial Futures Association of Japan; and Type II Financial Instruments Firms Association. Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but not limited to, Conflicts of Interest, Chinese Wall and Confidentiality policies) as well as through the maintenance of Chinese walls and employee training. Additional information is available upon request and disclosure information is available at the Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx

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Nomura | Global Economic Outlook Monthly

11 March 2013

Copyright 2013 Nomura Securities International Inc.. All rights reserved.

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Nomura | Global Economic Outlook Monthly

11 March 2013

Global Economics
Economists
Global-Economics Research Lewis Alexander North America-Economics Research Aichi Amemiya Roiana Reid Joseph Song Charles St-Arnaud Ellen Zentner EMEA-Economics Research Jacques Cailloux Nick Matthews Silvio Peruzzo Dimitris Drakopoulos Lefteris Farmakis Takuma Ikeda Philip Rush Stella Wang Japan-Economics Research Tomo Kinoshita Shuichi Obata Kohei Okazaki Asuka Tsuchida Asia Ex-Japan-Economics Research Rob Subbaraman Young Sun Kwon Euben Paracuelles Sonal Varma Zhiwei Zhang Chief Economist Asia Hong Kong, South Korea and Taiwan Economist Southeast Asia Economist India Economist China Economist rob.subbaraman@nomura.com youngsun.kwon@nomura.com euben.paracuelles@nomura.com sonal.varma@nomura.com zhiwei.zhang@nomura.com +852 2536 7435 +852 2536 7430 +65 6433 6956 +91 22 4037 4087 +852 2536 7433 Chief Japan Economist Senior Economist Economist Economist tomo.kinoshita@nomura.com shuichi.obata@nomura.com kohei.okazaki@nomura.com asuka.tsuchida@nomura.com +81 3 6703 1280 +81 3 6703 1295 +81 3 6703 1291 +81 3 6703 1297 Chief European Economist Senior Economist Senior Economist Economist Economist Senior Economist Economist Economist jacques.cailloux@nomura.com nick.matthews@nomura.com silvio.peruzzo@nomura.com dimitris.drakopoulos@nomura.com lefteris.farmakis@nomura.com takuma.ikeda@nomura.com philip.rush@nomura.com stella.wang@nomura.com +44 20 7102 2734 +44 20 7102 5126 +44 20 7102 3205 +44 20 7102 5846 +44 20 7103 9242 +44 20 7102 1605 +44 20 7102 9595 +44 20 7102 0599 CAN & AUS Economist Senior US Economist US Economist US Economist aichi.amemiya@nomura.com roiana.reid@nomura.com joseph.song@nomura.com charles.starnaud@nomura.com ellen.zentner@nomura.com +1 212 667 9347 +1 212 298 4221 +1 212 667 2415 +1 212 667 1986 +1 212 667 9668 US Chief Economist lewis.alexander@nomura.com +1 212 667 9665

Strategists
Global-Emerging Markets Research Olgay Buyukkayali Tony Volpon Peter Attard Montalto Benito Berber George Lei Head of EM Strategy, EMEA Head of Emerging Markets Research - Americas Economist Senior Latin America Strategist Associate - EM Research olgay.buyukkayali@nomura.com tony.volpon@nomura.com peter.am@nomura.com Benito.Berber@nomura.com George.Lei@nomura.com +44 20 7102 3242 +1 212 667 2182 +44 20 7102 8440 +1 212 667 9503 +1 212 667 9947

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